GST/HST Filing Mistakes That Cost Canadian Businesses Thousands
- Sahilpreet
- Mar 24
- 4 min read
Filing GST/HST returns is a crucial part of running a business in Canada. However, even minor mistakes can result in costly penalties, interest charges, or even audits from the Canada Revenue Agency (CRA). Many small business owners and entrepreneurs unknowingly make errors that cost them thousands of dollars. In this guide, we will highlight the most common GST/HST filing mistakes and explain how to avoid them, ensuring your business remains compliant and financially efficient.
1. Failing to Register for GST/HST on Time
Businesses in Canada must register for a GST/HST account once their annual taxable revenue exceeds $30,000. If they fail to do so, they may face penalties and interest charges on uncollected taxes. Additionally, businesses that delay registration may miss out on potential Input Tax Credits (ITCs), reducing their ability to recover GST/HST paid on expenses.
How to Avoid It
To prevent this mistake, businesses should monitor their revenue closely and register as soon as they reach the threshold. If a company expects to exceed $30,000 in revenue soon, it can register voluntarily to start claiming ITCs earlier. The easiest way to register is through the CRA’s Business Registration Online (BRO) service, which allows for quick and hassle-free registration.
2. Incorrectly Claiming Input Tax Credits (ITCs)
ITCs allow businesses to recover the GST/HST they pay on eligible business expenses. However, incorrectly claiming ITCs—whether by including ineligible expenses or failing to claim valid ones—can lead to CRA audits or lost refunds. Businesses that mix personal and business expenses may also face scrutiny.
How to Avoid It
To ensure accuracy, businesses should keep detailed records and receipts for all eligible expenses. It’s essential to verify that expenses are strictly for business use and not personal. Different rules apply to specific categories such as capital property, meals, entertainment, and mixed-use purchases. Using accounting software to track and categorize ITCs can help businesses maintain compliance and reduce errors.
3. Missing Filing Deadlines
Late GST/HST filings can lead to penalties and interest charges, adding unnecessary costs to a business. Failing to meet deadlines can also trigger audits and increase scrutiny from the CRA.
How to Avoid It
Business owners should determine their filing frequency (monthly, quarterly, or annually) based on their revenue. Setting up reminders and automating payments through online banking can help ensure deadlines are met. Additionally, using the CRA’s My Business Account allows businesses to track due dates and submit filings electronically.
4. Charging the Wrong GST/HST Rate
Different provinces have different GST/HST rates, and applying the incorrect rate can result in businesses either undercharging or overcharging customers. This mistake can lead to compliance issues and potential financial losses.
How to Avoid It
Business owners should verify the applicable GST/HST rate based on the customer’s location. For example, Alberta, Northwest Territories, Nunavut, and Yukon apply a 5% GST. In contrast, Ontario has a 13% HST, while Newfoundland and Labrador, Nova Scotia, Prince Edward Island, and New Brunswick have a 15% HST. Provinces like British Columbia, Saskatchewan, and Manitoba charge a 5% GST plus a separate Provincial Sales Tax (PST). Using accounting software that automatically applies the correct rate can help ensure compliance. Additionally, businesses should periodically review and update their invoices and tax settings as provincial tax rates may change.
5. Not Keeping Proper Records
The CRA requires businesses to keep records for at least six years. Poor record-keeping can lead to denied ITC claims, increased audit risks, and financial penalties.
How to Avoid It
Businesses should maintain both digital and physical copies of invoices, receipts, and tax filings. Using cloud-based accounting software such as QuickBooks, Xero, or Sage ensures that records are stored securely and can be easily accessed when needed. All records should clearly outline the GST/HST collected, paid, and remitted to ensure accuracy and compliance.
6. Reporting Errors on GST/HST Returns
Errors in reporting GST/HST collected, ITCs, or adjustments can result in audits and financial losses for businesses. Incorrect reporting can also create discrepancies that may take time and effort to resolve with the CRA.
How to Avoid It
To minimize errors, businesses should carefully review their figures before submitting returns. Reconciling GST/HST amounts with financial statements can help ensure accuracy. If an error is discovered after filing, businesses should correct it as soon as possible by submitting Form GST 106 or amending previous filings.
7. Failing to Remit GST/HST Collected
Some businesses collect GST/HST from customers but fail to remit the tax to the CRA. This often happens due to cash flow issues or accounting mismanagement. Failing to remit GST/HST can lead to severe penalties and legal consequences.
How to Avoid It
To avoid this mistake, businesses should separate GST/HST collected into a dedicated bank account. This ensures that the funds remain available when it’s time to remit them. Making payments on time through the CRA’s online payment options can also help prevent penalties. Working with a CPA can ensure proper tax management and prevent underpayment issues.
Conclusion
Avoiding these common GST/HST filing mistakes can save businesses thousands of dollars in penalties, lost credits, and unnecessary audits. By staying organized, leveraging accounting technology, and working with a professional CPA, businesses can ensure tax compliance and financial stability. If you need assistance with your GST/HST filings, Sahil & Meher Accountants and Consultants are here to help. Contact us today for expert guidance tailored to your business needs.
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