For Canadian businesses, collecting and remitting the Goods and Services Tax (GST) to the Canada Revenue Agency (CRA) is a legal requirement that should not be overlooked. Failing to meet your GST obligations can result in interest charges, penalties, and serious compliance issues. Understanding when and how to remit GST, as well as what records to keep, helps businesses avoid unnecessary complications while maintaining good standing with the CRA. Whether you are a small business owner or a sole proprietor, being well-informed about GST remittance is essential for financial and regulatory health.
Understanding GST and Its Purpose
What is GST?
The Goods and Services Tax (GST) is a federal tax applied to most goods and services sold or provided in Canada. Businesses collect GST from customers at the point of sale and are responsible for remitting it to the CRA. The current federal GST rate is 5%, but some provinces also have a combined Harmonized Sales Tax (HST).
Why GST is Important
GST helps fund public services such as healthcare, education, and infrastructure. Businesses act as intermediaries, collecting tax on behalf of the federal government. Therefore, it is not a tax on the business itself, but rather a trust responsibility to transmit collected funds accurately and promptly.
Who Must Register for GST?
Mandatory Registration
Businesses must register for a GST/HST account if their total taxable revenues exceed $30,000 in a single calendar quarter or over four consecutive quarters. This applies to sole proprietors, partnerships, corporations, and self-employed individuals offering taxable goods or services.
Voluntary Registration
Even if your revenues fall below the $30,000 threshold, you may choose to register voluntarily. This allows you to claim Input Tax Credits (ITCs) on eligible business expenses, which can reduce your overall tax liability.
Collecting GST from Customers
Charging the Right Amount
Once registered, you must start collecting GST on your taxable goods and services. The correct rate either GST or HST depends on the province where the sale occurs. Accurate billing ensures legal compliance and customer transparency.
Issuing Tax Invoices
Invoices should clearly indicate the GST amount charged, your GST number, and the total price. Keeping organized sales records is critical for smooth remittance and future audits.
How to Remit GST to the CRA
Determine Your Filing Frequency
Your remittance schedule depends on your total annual taxable revenues:
- Annual Filing: For businesses with $1.5 million or less in revenue.
- Quarterly Filing: Required for those earning between $1.5 million and $6 million.
- Monthly Filing: Mandatory for businesses with revenues above $6 million.
You can also opt to file more frequently than required to improve cash flow management.
Methods of Remitting GST
There are several ways to remit your GST to the CRA:
- Online through CRA’s My Business Account: Allows electronic submission of returns and payments.
- Using Third-Party Accounting Software: Some programs integrate with CRA systems for direct filing.
- Mail: Paper GST returns can be mailed with a cheque or money order.
- At Your Bank: Financial institutions may accept payments if you have a remittance voucher.
Deadlines Matter
Filing deadlines vary depending on your assigned frequency. For example, if you are an annual filer and your fiscal year ends on December 31, your return and payment are due by June 15 of the following year if you’re a sole proprietor, or by three months after year-end for corporations. It’s important to verify your deadlines and submit on time to avoid interest charges and penalties.
Input Tax Credits (ITCs)
Claiming ITCs
If you’re registered for GST, you may claim Input Tax Credits for the GST paid on eligible business expenses. This includes things like office supplies, utilities, inventory, and professional services. Deducting ITCs from your GST collected helps lower the total amount you need to remit.
Keeping Accurate Records
To claim ITCs, maintain detailed records, including invoices and receipts that show GST paid. Failing to document expenses can result in denied claims during an audit, which can increase your remittance liability.
Penalties for Late or Incorrect Remittance
Common Issues
Late filings, under-reporting, or incorrect calculations may lead to CRA penalties. Interest is charged daily on unpaid balances. The CRA may also impose administrative fines or perform audits if repeated errors occur.
Avoiding Compliance Problems
To stay compliant, consider setting calendar reminders for filing dates, using accounting software, or working with a qualified tax professional. Being proactive helps prevent costly mistakes and regulatory issues.
Adjustments and Corrections
Making Amendments
If you discover a mistake after filing, you can make adjustments in a future return or request a formal amendment through CRA’s My Business Account. Do not attempt to correct past errors by modifying current data without proper documentation, as it could trigger audits.
Refunds and Credits
If you have overpaid GST, you may be eligible for a refund or credit. This usually requires submitting a formal request with supporting documentation. Refunds are generally applied against future liabilities unless a cash refund is requested and approved.
Closing a GST Account
When to Close Your GST Account
You may need to cancel your GST registration if you stop business operations, sell your business, or if your revenues fall below the threshold and you no longer wish to be registered. This should be done through the CRA and may require a final return and payment of any outstanding balance.
Final Return Filing
The final return must report all taxable sales, adjustments, and any GST collected up to the cancellation date. Input Tax Credits can also be claimed on final eligible expenses.
Best Practices for GST Remittance
Tips for Efficient Management
- Use accounting software: Automates calculations and keeps records in one place.
- Keep business and personal finances separate: Helps maintain clear documentation.
- Review CRA updates regularly: Tax rules may change over time.
- Consult a tax advisor: Especially helpful if your business grows or your tax situation becomes complex.
Plan Ahead for Payments
Set aside GST collected regularly to avoid using it as working capital. This prevents cash flow stress when payments are due. Treat GST funds as liabilities rather than income.
Remitting GST to the CRA is a vital responsibility for Canadian business owners. Understanding the registration requirements, knowing how to calculate and collect GST, and staying on top of deadlines can protect your business from financial penalties and ensure ongoing compliance. With the right systems and habits in place, managing GST can become a streamlined part of your financial operations, allowing you to focus on growth and customer service. Stay informed, stay organized, and make GST remittance a regular and well-managed task in your business routine.