How to complete a GST/HST return
Hello. Thank you for joining me for this webinar on the step-by-step instructions for completing a GST/HST return.
Today's webinar is the second in a three-part series providing step-by-step instructions on employers' reporting requirements. My name is Maurice, and I am your presenter today. Also, I would like to mention that today's webinar will be recorded and posted on the Canada Revenue Agency (CRA) website at a later date.
Today, we will discuss input tax credits, or ITCs, and how to calculate the net tax using different methods.
We will review the filing and remitting requirements, reporting periods, instalment payments, and how to complete and correct a GST/HST return. Please remember that in Quebec, Revenu Québec generally administers the GST/HST. If the physical location of your business is in Quebec, you have to file your returns with Revenu Québec using its forms, unless you are a person that is a selected listed financial institution (an SLFI) for GST/HST or QST purposes or both. For more information, see the Revenu Québec publication IN-203-V, General Information Concerning the QST and the GST/HST, or call 1-800-567-4692.
The goods and services tax (GST) is a tax that is applied to most purchases of goods and services in Canada. The harmonized sales tax (the HST) is also a tax on goods and services. There are five participating provinces that harmonized the provincial sales tax (PST) with the GST to form the HST. The provinces are: Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island.
A province that hasn't harmonized the sales taxes is called a non-participating province. Although the GST percentage doesn't change from one province to another, the HST may differ depending on the percentage of the provincial sales tax. For example, the HST in Ontario is 13%, but the HST in New Brunswick is 15%.
You complete and file a GST/HST return to report the GST/HST that you collect on goods and services that you provide and send it to the CRA.
Before we talk about how to complete a GST/HST return, I will explain what an input tax credit (an ITC) is and how to calculate the net tax because you will need this information to complete your return.
If you have sales or income of $30,000 or more during four consecutive quarters, you need to register for a GST/HST account, charge it, collect it, and send it to the CRA. If you have less than $30,000 of sales or income, you are a small supplier and you are not required to register for a GST/HST account but you can still register voluntarily, unless you are in the taxi or limousine business, for example where you are required to register at the start of the business.
As a registrant, you can get a refund of the GST/HST you paid on your purchases and other expenses for your business.
The GST/HST you get back is called an ITC.
Here, you have an example of expenses for which a business paid GST/HST. If those expenses are for things to consume, use, or supply for its commercial activities, the business may be eligible to claim an ITC for each expense.
There are some expenses for which you cannot claim an ITC, such as:
- buying certain capital property;
- taxable supplies of property and services you bought or imported to make exempt supplies of property and services;
- membership fees or dues to any club whose main purpose is to provide recreation, dining, or sporting facilities (including fitness clubs, golf clubs, and hunting and fishing clubs), unless you get the memberships to resell in the course of your business; and
- property or services you bought or imported for your personal consumption, use, or enjoyment.
To claim an ITC, an expense must be reasonably related to your business.
Now that we've covered what is an ITC, I want to explain how you calculate the net tax. For most businesses, this calculation is straightforward. There are two methods you can use, the regular method or the quick method.
Generally, under the regular method, the GST/HST is calculated on every goods and services you had for your commercial activities.
The quick method helps reduce paperwork and bookkeeping costs, most small businesses can use it to calculate the GST/HST that they need to send to the CRA. Under the quick method, the GST/HST paid or payable is calculated based on a percentage. If you use this method, you have to continue using it for at least a year. If you use this method, you cannot claim ITCs on most of your purchases and expenses. We will talk about that later.
You can choose to use the quick method by completing Form GST74, Election and Revocation of an Election to use the Quick Method of Accounting, and sending it to the CRA. Let's quickly review each method.
We will first review the regular method. To calculate the net tax, determine the GST/HST you collected, or that you will collect, on each taxable sale you made during the reporting period. We will talk about reporting periods later during the presentation.
Next, calculate the GST/HST you paid for each business expense for which you can claim an ITC. Remember on slide 6, we gave you examples of eligible business expenses for which you paid GST/HST. Don't forget you can claim an ITC for each eligible expense.
The difference between the amounts you collected and the amounts you paid, including any adjustments, is called net tax. The net tax is what you will send to the CRA.
Here is an example of the regular method. Now that you have calculated the GST/HST you collected and paid for your eligible expenses, the rest is simple. In this example, you collected GST/HST totalling $1,500 from your clients, and you calculated $925 for the GST/HST you paid on eligible business expenses.
If no adjustments are required on the return, your net tax would be $575. You would have to send this amount to the CRA and file your return by its due date.
The quick method is another accounting option available to help small businesses calculate their net GST/HST tax. This method reduces paperwork, makes it easier to calculate the net tax to be paid, and easier to file returns. This is because the quick method removes the need to report the GST/HST paid or payable on most business purchases and expenses.
When you use the quick method, you will still charge GST at the rate of 5% or HST at the applicable rate on your taxable supplies of goods and services.
The remittance rates for the quick method are less than the rates of GST/HST you charge. This means that you only have to send to the CRA part of the GST/HST you collected or that you will collect.
When you use the quick method, you cannot claim an ITC on most of your business expenses, because the part of the GST/HST that you keep is about the same amount as the ITC that you would have otherwise claimed.
You can use the quick method if you meet all of the following conditions:
You have been in business continuously for a 365-day period that ends just before your current reporting period.
You did not revoke an election for the quick method or the simplified method for claiming ITCs during that 365-day period.
Your revenues from your annual worldwide taxable supplies and those of your associates, including GST/HST, are not more than $400,000 for a period that includes your first or your last four consecutive fiscal quarters that occurred in the last five fiscal quarters.
When you calculate your annual worldwide taxable supplies, do not include supplies of financial services or sales of real property, capital property, or eligible capital property (including goodwill).
And you are not a person listed under "Exceptions."
The following persons cannot use the quick method:
- persons that provide legal, accounting, or actuarial services as professionals;
- persons that, as commercial activity, provide bookkeeping, financial consulting, tax consulting, or tax return preparation services;
- listed financial institutions;
- municipalities or local authorities designated as a municipality;
- public colleges, school authorities, or universities;
- hospital authorities, facility operators, or external suppliers;
- charities; or
- non-profit organizations with at least 40% government funding in the year.
Now that we've covered who can use the quick method, I would like to go through the applicable rates.
What you see on the screen are the applicable rates for each province. Once you have selected the "During the following period" and the applicable column, refer to the GST/HST quick method remittance rates for businesses. We will see it on the next slide. You can also refer to the Guide RC4058, Quick Method of Accounting for GST/HST.
Here's an example of how to use the chart. For the first quarter of 2016, the company in our example has to use two different remittance rates, because it has sales in Ontario (a participating HST province), and in Manitoba (a non-participating province), and it does not make a minimum of 90% of its total taxable sales in one of these provinces.
Since the company is located in Ontario, we find that we have to use column 3.
Then, using the table titled "GST/HST quick method remittance rates for businesses that purchase goods for resale, based on the province where the permanent establishment of a business is located" we selected column 3, as determined in the previous chart for the purpose of this example, to find the percentage rate of the remittances. So the company's remittance rate in Ontario is 4.4%, since the HST is at 13% and in Manitoba, the rate is 0%, plus a 2.8% credit and the GST is 5%.
The company using the quick method of accounting in our example can also claim a 1% credit for the first $30,000 of eligible supplies for the GST collected at 5% or the applicable rate for HST.
Here is our example in an easy-to-read table. The company made sales of $36,000 in Ontario and sales of $9,000 in Manitoba.
In the previous slide, we found the remittance rate for the eligible sales made in Manitoba and in Ontario. The company can deduct a credit of 2.8% for the $9,000 of eligible sales made in Manitoba and deduct 1% for the first $30,000 of eligible sales.
The first quarter remittance is calculated at $1,032. That's the amount the company has to send to the CRA.
To calculate ITCs only, you can use the simplified method. Note that this method cannot be used to calculate the net tax.
In Step 1, add your ITCs on eligible business expenses. When you make purchases in both participating and non-participating provinces, you have to add your purchases separately that are taxed at 5, 13, 14, and 15%.
As part of your additions, include purchases and improvement of capital personal property. However, you must use that property for more than 50% in your commercial activities. Your totals should include:
- GST or HST;
- non-refundable PST on GST taxable purchases;
- taxes or duties on imported goods;
- reasonable tips;
- interest and late-penalty charges for taxable purchases; and
- reimbursements paid to employees, partners, and volunteers for taxable expenses.
In Step 2, multiply the amount you calculated in Step 1 by the amount of GST or HST you paid. For example, if you paid 13% HST, you would multiply the amount by 1.13. If you paid 5% GST, multiply by 1.05.
In Step 3, add the following amounts if they apply to the amount calculated in Step 2:
- ITCs you did not claim before you started using the simplified method, as long as the time limit for claiming them has not expired;
- ITCs for the GST/HST you paid or owed on real property purchases; and
- If you are an individual or a partnership, the ITCs you can claim for a passenger vehicle or an aircraft used less than 90% in your commercial activities.
What you see on the screen is a copy of a GST/HST return. Once you have completed the return with your information, enter the GST/HST total on line 106. If you are filing electronically, include the total of your calculation on line 108.
Now let's talk about reporting periods.
Reporting periods are the periods of time for which you file your GST/HST returns.
When you register for a GST/HST account, the CRA will generally assign an annual reporting period. However, you may choose a more frequent reporting period.
Your reporting period is normally determined based on the total revenue from your taxable supplies of goods and services made in Canada in the previous fiscal year or in all previous fiscal quarters ending in a fiscal year. This revenue includes zero-rated supplies of goods and services made in Canada, and those of your associates.
What is a fiscal year? Usually, your fiscal year for GST/HST purposes is the same as your tax year for income tax purposes. Generally, the tax year of the following persons is a calendar year: individuals and certain trusts, certain professional corporations and certain partnerships. You can change your fiscal year using the form GST70, Election or Revocation of an Election to Change a GST/HST Fiscal Year.
When determining your reporting period, do not include revenue from:
- supplies made outside of Canada;
- zero-rated exports of property and services;
- zero-rated supplies of financial services;
- exempt supplies;
- taxable sales of capital real property; or
You must file a GST/HST return for each reporting period. The chart on the next slide shows the threshold revenue amounts that will determine the assigned reporting periods.
Here is a chart with the assigned reporting periods, based on your annual taxable threshold amounts. For annual and quarterly remitting periods, you can choose a more frequent remitting period if you are eligible.
If your annual taxable supplies are $1.5 million or less, the CRA generally assigns an annual reporting period, with the option of electing to file quarterly or monthly.
If your annual taxable supplies are more than $1.5 million but less than $6 million, the CRA generally assigns a quarterly reporting period, with the option of electing to file monthly.
If your annual taxable supplies are more than $6 million, you will have a monthly reporting period and no other filing options.
The due date for filing your return is printed on each return the CRA sends you.
You have to respect your filing period. If you want to choose a more frequent filing period than the one assigned to you, you would complete Form GST20, Election for GST/HST Reporting Period. You must also respect the due dates of that period.
Now that we have covered the reporting period, I want to talk about the instalment requirements. If you are assigned an annual filing frequency, you may have to send the CRA quarterly instalments throughout the year if your net tax is $3,000 or more.
Instalment payments are generally equal to the quarter of your net tax.
If you are a new registrant and the CRA assigns you an annual filing frequency, and your first year of filing for the GST/HST was less than a full fiscal year, you may have to make instalment payments during your next fiscal year, even if your net tax was less than $3,000.
For example, your first fiscal year was eight months (from May to December), and you calculated that your net tax was $2,800. Divide the net tax ($2,800) by the number of months (8), and you arrive at $350 per month.
To determine the estimated amount of your next fiscal year, multiply the per-month amount (of $350) by 12 months. In this example, the estimated amount is $4,200 for the year. So you would need to make quarterly instalment payments, because the amount is more than $3,000.
If your net tax for the current or previous year is less than $3,000, you do not have to make quarterly instalment payments in the current year.
Your instalment payments are due one month after the end of each fiscal quarter.
You can also calculate your instalment payments and view the due dates online, by registering and using the CRA's My Business Account.
If instalment payments are not received by the due date, they are subject to penalties and interest.
You can make your instalment payments online, using the CRA's My Payment option, your financial institution's Internet or telephone banking service or by pre-authorized debits in My Business Account.
If you choose to pay your instalment at your financial institution or to send the payment to the CRA by mail, use Form RC160, Remittance Voucher – Interim Payments – personalized.
It is your responsibility to make sure your payment is received by the due date, even if you do not receive your remittance form on time.
When you file your GST/HST return at the end of your fiscal year, report the instalment payments you made on line 110 of your return and remit any amount owing.
Remember, line 110 is not used to report ITCs, only instalment payments.
If you paid your GST/HST by cheque via mail or at your financial institution, the CRA will send you a personalized return, Form GST34-2. You will also receive an access code, in case you decide to file electronically.
If you paid your instalment electronically through My Business Account, the CRA will mail you the GST34-3 booklet. It will provide you with an access code to file your returns electronically. It also includes remittance vouchers for the year to make a payment by mail or at the bank.
Depending on your situation, you may have to use a specific filing method for your GST/HST return. For example, if you have more than $1.5 million in annual taxable supplies, electronic filing will be mandatory. If you must file electronically and you do not do so, you will be subject to penalties.
To determine if you must use a specific method of filing, you can visit cra.gc.ca/gsthst-filing.
The personalized GST/HST return that the CRA sends you includes the date that the return is due.
Remember that GST/HST funds are held by you in trust for the CRA. It is your responsibility to hold all the funds you collected until your reporting period or your instalment due date.
My Business Account is a great way for you, as a business owner, to view your CRA business account information online. You can see your filing-due dates and stay on top of your filing obligations.
It is good to complete a working copy of a GST/HST return, before using the personalized return that the CRA will send you. On the CRA's website under "GST/HST for Businesses," under "Tools" you can find a working copy of a GST/HST return. You can use this copy to calculate amounts and make sure everything is correct before completing your personalized return.
On the return, enter the total sales and other revenues on line 101. If you are using the quick method, include the GST/HST.
Enter on line 103, all the GST/HST you collected or that may become collectible in the reporting period. On line 104, enter the total amount of adjustments you need to make when determining the net tax for the reporting period.
The total of these two lines is entered on line 105.
Enter the GST/HST you paid on qualifying ITCs on line 106, including ITCs on real property you purchased, and enter any adjustment to be deducted on line 107. This is where you would report the 1% credit for the quick method.
Add those two lines, and enter the total on line 108. Next, you subtract line 105 from line 108 to find your net tax, which you enter on line 109. If you have other credits to claim, add them in the next section.
If you paid instalments or other amounts, enter the total on line 110. If you have any GST/HST eligible rebates, for example a new housing rebate, enter the total on line 111.
If you have GST/HST due on the purchase of taxable real property, enter the amount on line 205, and enter other amounts of GST/HST to be self-assessed on line 405.
After you calculated the balance, a positive amount (which is an amount due) will go on line 115, and a negative amount (a refund) will go on line 114.
There are four easy and convenient filing methods for a GST/HST return.
The GST/HST NETFILE method lets you file your returns with the CRA over the Internet. If you access GST/HST NETFILE through My Business Account, you do not need to enter an access code when filing your return.
The electronic data interchange method is a computer-to-computer exchange of information in a standard format. Eligible businesses can use this method to file their return and send their payments electronically. Most financial institutions in Canada offer this service.
The GST/HST TELEFILE method lets you file your return using a touch-tone telephone and a toll-free number.
The GST/HST Internet File Transfer method lets you use third-party accounting software to file your return with the CRA over the Internet.
To learn more about these methods, go to "E-services for Businesses" on the CRA website.
If you need to change a return you have filed, do not file another return.
If you need to increase an amount of GST/HST, or make any changes to other lines, you can ask for an adjustment for the related reporting period.
To do that, use My Business Account or send a letter to your tax center and include the following:
- your business number;
- the GST/HST reporting period to be amended; and
- the corrected or revised amounts for each line number on your GST/HST return.
The request must be signed by an authorized representative.
If you are asking for changes through My Business Account, the reporting period that you want to adjust must first be assessed and posted in My Business Account.
If you do not meet your obligations as a GST/HST registrant, you may be subject to actions to encourage you to comply as indicated on the screen.
In addition to penalties and assessed amounts, you will be charged interest on:
- any overdue balance owing; and
- late or insufficient instalment payments.
The CRA may hold other refunds you may be entitled to (for example, an income tax refund) until you file your outstanding GST/HST return.
You can sign up to access My Business Account. It is a secure online portal that gives you an opportunity to interact electronically with the CRA. My Business Account offers a variety of online services for your GST/HST account, such as filing a return, applying for a rebate, as well as viewing mail, filed returns, and account balances.
My Business Account is:
- convenient—it's available 21 hours a day, 7 days a week;
- it's easy to use—after you are registered, you can simply log in with your CRA user ID and password; and
- it's fast and secure.
If you are not already registered for My Business Account, you will need to register before you can use it to interact with the CRA. Go to cra.gc.ca/mybusinessaccount.
There are resources available to help you on the CRA website.
Go to the cra.gc.ca and visit our webpages for businesses.
If you are looking to expand your knowledge on any of the items covered in today's webinar, there are recommended resources that can help.
The Guide RC4022, General Information for GST/HST Registrants, is a valuable resource for both new and existing registrants.
For information about the quick method of accounting, see Guide RC4058, Quick Method of Accounting for GST/HST.
Pamphlet RC2, The Business Number and your Canada Revenue Agency Program Accounts, provides in-depth information about the business number and the roles each program account plays, including the GST/HST program account.
You can find more guides, pamphlets, forms, and other publications at cra.gc.ca/gsthstpub.
This is all the time we have. Thank you for joining me today. I hope that this webinar has given you a better understanding of how to complete a GST/HST return.
Report a problem or mistake on this page
- Date modified: