Webinar: What to expect during a GST/HST trust account examination
Hello and welcome to our webinar on what to expect during an examination of your goods and services tax/harmonized sales tax—or GST/HST—trust accounts. My name is Mathew and I am your presenter.
Today’s webinar will be recorded and posted on Canada.ca later so you can refer to it in the future.
This webinar will be of interest to you if you have a business and collect GST/HST. Managing your GST/HST obligations can be complicated. And being notified that your business will get a GST/HST trust accounts examination can cause you some stress.
Being prepared for such an examination can go a long way toward easing your concerns. It can also help the examination go smoothly and quickly. That way you can get back your focus on running your business as soon as possible.
A GST/HST trust accounts examination is simply a review of your books and records to make sure you’ve done the proper calculations related to your GST/HST obligations and that you applied the laws correctly. This helps keep the tax system fair for everyone.
A trust accounts examination is not an audit. An audit is a more detailed examination of all your books and records. However, if our examination raises some concerns, your business can then be referred for an audit.
In our experience, most businesses want to do things right. Intentional non-compliance is rare. Sometimes it’s just a matter of getting a little help and know-how to get back on track.
If you operate a business and your sales are $30,000 or more during any calendar quarter or your sales were $30,000 or more in the last four consecutive calendar quarters, you have to register for a GST/HST account and collect GST/HST on the products or services you sell.
If you have employees, the Canada Revenue Agency (or the CRA, for short) can also conduct a payroll trust examination to make sure you have collected and remitted Canada Pension Plan, employment insurance and income tax on behalf of your employees. You also have to file T4 slips. The CRA might do a payroll trust examination at the same time as a GST/HST examination.
We will not get into payroll examinations in this webinar, but you can find more information in our payroll trust examinations video at Canada.ca/cra-videos.
This webinar will explain the GST/HST trust accounts examination process. We will cover the following topics:
- What are your GST/HST obligations?
- What is a GST/HST trust accounts examination?
- And how do you prepare for the examination?
- What happens during and after the examination?
In most cases, if you are a sole proprietor, partnership or corporation that provides taxable supplies in Canada, you must register for a GST/HST account. That means you have to collect the GST/HST on what you sell, you hold the money you collected from your clients "in trust," and then you send it to the CRA. All GST/HST registrants also have to file GST/HST returns.
The exception to this is the small supplier. You are a small supplier if the total value of what you sell is less than $30,000 during any calendar quarter and in the last four consecutive calendar quarters. If you are a public service, you’re a small supplier if the value of what you sell is less than $50,000 during any calendar quarter. For GST/HST purposes, a public service is either a non-profit organization, a charity, a municipality, a school authority, a hospital authority, a public college or a university. Small suppliers do not need a GST/HST account.
As a GST/HST registrant, you may also claim a tax credit, which brings us to the discussion about net tax.
We’ve established that you collect GST/HST from your clients. At the same time, you likely also pay GST/HST for the purchases you make for your business. As a GST/HST registrant, you can recover some of that GST/HST by claiming an input tax credit, which we call an ITC for short. You might be able to claim ITCs if your purchases and expenses are for things you consume, use, or supply in your commercial activities.
For example, a long haul trucking business may choose to claim an ITC for the GST/HST they reimburse to their drivers for meal and entertainment expenses they incurred in Canada. For more information on what ITCs your business could be eligible for, take a look at form RC4022 found on Canada.ca/cra-forms-publications.
The difference between the GST/HST you collect and the ITCs you claim is the net tax. You have to calculate your net tax for each GST/HST reporting period and report this on the GST/HST return. For instructions on how to calculate your net tax, go to Canada.ca/cra under the Taxes tab and then click on GST/HST.
Once you have calculated your business’s net tax, there are two ways you can file your GST/HST returns.
First, you can file monthly or quarterly. If you have a monthly or quarterly reporting period, you have to file your GST/HST return and remit any amount owing one month after the end of your reporting period.
Second, you can file once per year. If you report annually, you usually have to file your return and send the CRA any amount owing three months after the end of your fiscal year.
You may also have to pay quarterly instalments. In that case, each instalment payment is due one month after the last day of the fiscal quarter.
It’s important that you file your GST/HST returns on time. If you own or operate a sole proprietorship or partnership and have not filed, the CRA will hold your personal income tax refund. The hold will be lifted when you file your GST/HST return.
If you are a mandatory electronic filer, you should file through GST/HST NETFILE. To find out if you are a mandatory electronic filer, consult Guide RC4022.
As I mentioned earlier, a GST/HST trust accounts examination is a review of your books and records to make sure you properly calculated the GST/HST you collected, your input tax credits, and the net tax. We also make sure you file overdue GST/HST returns.
Remember that the trust accounts officers are there to help. You can ask them any questions you may have about your GST/HST and employer payroll obligations.
You should ensure that you have overdue GST/HST returns prepared and ready for review. Maintaining documents in an orderly fashion and staying organized helps the trust accounts officers complete the examination quickly. It is important to make sure your books and records are accurate and up to date. They should include invoices, receipts, source documents, bank statements, and etc. They also should be easily accessible, either electronically or on paper.
If you need some help, the CRA’s free Liaison Officer Service helps small businesses get their tax obligations organized. Liaison officers are available across Canada to help you understand your tax obligations and avoid common errors that could cost you time and money. Find out more at Canada.ca/cra-liaison-officer.
So, let’s say you’ve been selected for a GST/HST trust accounts examination. There are many reasons you might be selected for a Trust Account Exam. Some of these include non-compliance, referrals from other CRA sections, and certain situations that cannot be resolved with a simple phone call.
First, an examination officer will call or send you a letter to set up an appointment with you or your authorized representative. At that time, they will explain what books and records they will need for the examination. For example, you’ll be asked to produce completed and signed GST/HST returns for any overdue periods.
Examination officers who call your business may ask for your business account number and other information to verify your identity. An Examination officer will never ask you for immediate payments by e-transfer, PayPal, interact or others, and will never use aggressive language.
To learn about how to protect yourself from scams, visit Canada.ca/tax-tips and click on "What to expect when the Canada Revenue Agency contacts you".
The examination officers are there to help you. Feel free to ask them any questions you may have.
During the examination, the officer will review your books and records. They may ask questions about how you charged, remitted and reported the GST/HST. Please be as open and honest as possible. Be prepared to explain any actions you took.
If you cannot provide your GST/HST return, the officer may use the records reviewed, information slips, business income reported on your personal tax return, or information from earlier GST/HST returns to assess the overdue periods.
When the examination is finished, the officer will provide you with the findings of the examination in a statement of account. They will explain the contents of the statement, including penalties charged and any applicable interest.
If the trust accounts officers find you owe an amount at the end of the examination, you can pay it by cheque directly to the officer, or through various online options, which the officer will explain.
If the examination was conducted through your authorized representative, the officer will contact you to discuss the findings and a statement of account will be mailed to you. If you have any questions, please contact the examination officer.
After the GST/HST trust account examination, the CRA processes the GST/HST returns you provided to the officer. If you did not provide any returns or if significant problems are identified during the examination, your file could be referred for an audit.
The CRA will send you a notice of assessment or reassessment after your returns are processed.Contact the examination officer if you have any questions.
If you don’t agree with the notice of assessment, you can file an objection with the CRA within 90 days of the assessment. To file an objection, use Form GST159 Notice of Objection (GST/HST). Make sure to include all the relevant facts and explain why you disagree.
If you’re looking for more information about your GST/HST obligations, we recommend the following two CRA publications:
- Guide RC4022, General Information for GST/HST Registrants; and
- Guide RC188, Keeping Records
These are both available at canada.ca/cra-forms-publications.
Thank you for watching.
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