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The Complete HST Remittance Guide for Canadian Small Businesses

If you collect HST on behalf of the CRA, you need to remit it on time and in the right amount. Here is exactly how to do that without the confusion.

Published by Scott Sutherland6 min read

Image source: Unsplash

What is HST and when are you required to collect it?

HST stands for Harmonized Sales Tax. It is the combined federal GST and provincial sales tax that applies in Ontario, Nova Scotia, New Brunswick, Newfoundland and Labrador, and Prince Edward Island. If your business is registered in one of these provinces and you supply taxable goods or services, you are legally required to collect HST from your customers and remit it to the Canada Revenue Agency. It is important to understand that the HST you collect does not belong to your business. You are acting as a tax collector on behalf of the government, and it needs to be sent in on time or you will face penalties and interest charges.

The registration threshold is a gross revenue of more than $30,000 in a single calendar quarter or over four consecutive calendar quarters. Once you cross that threshold, you have 29 days to register for a GST/HST account with the CRA. Some businesses choose to register voluntarily before hitting the threshold, which makes sense if you have significant input tax credits to claim. Voluntary registration allows you to recover HST paid on your business expenses, even if your revenue is below the mandatory threshold. If you are a taxi driver, ride-sharing driver, or involved in certain other specific industries, registration is mandatory regardless of your revenue level.

The rate of HST varies by province. In Ontario, the combined rate is 13 percent. In Nova Scotia it is 15 percent, New Brunswick and Newfoundland and Labrador are also 15 percent, and Prince Edward Island sits at 15 percent as well. If you operate in multiple provinces, you need to be careful about which rate applies, which is determined by the province of supply rather than the province where your business is located. A registered business collects HST from customers at the applicable rate, tracks that amount as HST collected, and then subtracts any HST paid on business purchases to arrive at the net amount owing to the CRA. This net amount is called net tax, and it is what you actually remit to the government. If your input tax credits exceed the HST you collected in a given period, you will have a refund rather than an amount owing. This is common for businesses in a growth phase that are spending heavily on equipment, software, or other taxable inputs. In those cases, filing more frequently means receiving your refund sooner rather than waiting until year end, which can make a meaningful difference to cash flow.

  • You must register for HST if your gross revenue exceeds $30,000 in any single quarter or over four consecutive quarters.
  • HST rates vary by province: 13 percent in Ontario, 15 percent in Nova Scotia, New Brunswick, PEI, and Newfoundland.
  • The HST you collect belongs to the CRA, not your business - it must be remitted on time.
  • Voluntary registration before the threshold can be worth it if you have significant HST on your business expenses.

Filing periods and how to know which one applies to you

The CRA assigns a filing frequency based on your annual revenue. Annual filers are businesses with taxable revenues of $1.5 million or less. Quarterly filers are businesses with taxable revenues between $1.5 million and $6 million. Monthly filers are businesses with taxable revenues over $6 million. When you register for a GST/HST account, the CRA will automatically assign you a filing period based on the revenue you reported at registration. You can apply to change your filing period if your revenue has changed significantly, but you generally cannot switch to a less frequent period during a fiscal year.

Annual filers have until three months after the end of their fiscal year to file and pay. Quarterly filers must file and pay within one month of the end of each quarter. Monthly filers must file and pay within one month of the end of each reporting period. For most small businesses in Canada, a quarterly or annual filing period is standard. Keep in mind that even if you owe nothing for a period, you still need to file a nil return. Failure to file on time results in a late-filing penalty, regardless of whether you owe any tax.

New registrants can sometimes choose their own filing frequency. If you are just starting out and your revenues are modest, you may prefer annual filing to reduce administrative burden. However, if you are regularly spending money on taxable inputs and accumulating input tax credits, filing more frequently means you get your refund sooner. For businesses that consistently get HST refunds rather than owing money, monthly filing often makes the most financial sense. Talk to your accountant about which frequency works best for your cash flow situation. It is also worth noting that once you request a change to a more frequent filing period, the CRA may not allow you to revert to a less frequent period until the following fiscal year. Choosing the right filing frequency at the time of registration is therefore worth thinking through carefully rather than defaulting to annual simply because it seems simpler.

  • Annual filers: taxable revenue of $1.5 million or less - file within three months of your fiscal year end.
  • Quarterly filers: taxable revenue between $1.5 million and $6 million - file within one month after each quarter.
  • Monthly filers: taxable revenue over $6 million - file within one month of each reporting period.
  • You must file a nil return even if you owe nothing for a period or you will be hit with a late-filing penalty.

Input tax credits: how to reduce what you owe

An input tax credit, or ITC, is the mechanism by which you recover HST paid on goods and services you purchased for your business. The basic principle is that you remit the HST you collected from customers minus the HST you paid on your own business purchases. If you collected $5,000 in HST from clients but paid $1,200 in HST on business expenses, your net remittance is $3,800. ITCs turn the HST system into a value-added tax where only the final consumer ultimately bears the cost of the tax.

To claim an ITC, you need valid documentation. For purchases under $30, a receipt showing the vendor's name, the date, and the total amount is sufficient. For purchases between $30 and $149.99, you also need the vendor's GST/HST registration number. For purchases of $150 or more, you additionally need your business name or trading name. If your supplier is not registered for HST, you cannot claim an ITC on that purchase, because no HST was actually charged. This is one reason it matters that your suppliers are HST-registered: it affects your ability to recover costs.

Not all expenses are eligible for full ITC claims. Meals and entertainment are only 50 percent eligible. Passenger vehicles have specific limitations tied to the capital cost allowance class of the vehicle. Personal use portions of any expense must be excluded from your ITC claim. If you use a home office, only the business-use portion of home expenses qualifies. Tracking these details carefully throughout the year will prevent errors on your return and protect you in the event of a CRA review. Good bookkeeping software that separates business from personal expenses and flags ITC-eligible purchases will save you a significant amount of time.

  • ITCs reduce the HST you owe: net remittance equals HST collected minus HST paid on business purchases.
  • Keep valid documentation for all purchases - invoices over $150 must include your business name and the supplier's registration number.
  • Meals and entertainment are only 50 percent eligible for ITCs.
  • Personal use portions of any expense must be excluded from your ITC calculation.

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