How does the CRA Calculate your HST Return Amount?
If you’re responsible for managing the finances of a small business and if your business reports HST on a quarterly basis, the deadline for filing and paying your HST return is quickly approaching this October 31, 2014. Have you ever stopped and thought about how the CRA calculates how much HST you owe or are going to be refunded? In this post we explore how HST filings are calculated.
A Quick Recap: What is HST?
HST stands for harmonized sales tax and it is a tax managed by the Canada Revenue Agency. HST is the combination of Canada’s federal GST sales tax and the local provinces PST sales tax. Some provinces have adopted HST whereas others have chosen to keep their GST and PST separate.
In provinces that have adopted HST there can be different tax rates. Since the PST can vary from province to province and because the HST is simply the combination of GST and PST, HST can vary from province to province, too.
Ontario adopted HST on July 1, 2010 and the HST rate in Ontario is 13%, based on the 5% GST and 8% PST rates.
How is Your HST Remittance Calculated?
When businesses charge HST on the products and services that they sell, they don’t get to keep the extra 13%, they collect it on behalf of the CRA. The CRA uses the monies collected from HST to fund our public school system, health care, build roads and the like – things that we all get to benefit from.
Businesses are not all required to collect and remit HST. If the total sales in a financial quarter year are less than $30,000 then the business is not required to collect HST. Once a business exceeds $30,000 they are required to collect and remit HST.
HST is charged on most products and services bought by most people and businesses, but there are some exceptions. Some of the exceptions related to motor vehicles, boats and aircraft, as well as point-of-sale exceptions like books, newspapers, children’s clothing, diapers and others. There are also exceptions for those with First Nations status.
When you charge HST in your business, you have to keep a record of the amount of HST that you collect and keep it separate from your business revenue. Most accounting software packages, like QuickBooks, do this automatically – you just have to set up your tax codes and indicate when you’re invoicing your customers if you’re charging them HST on their purchase.
Similarly, when a business is buying the products and services it needs to operate, whether those products and services will be consumed within the business or will be resold, it will be paying HST on applicable items – these are called ITC’s (input tax credits). When you enter the purchase of these goods and services in your accounting package you should be careful to separate the purchase price from any sales taxes paid.
When you remit your HST return, you are simply calculating the difference between the amount of HST you collect and pay during the remittance period. If you paid more than you collect then you will get a refund, if you collect more than you pay then you pay the difference to the CRA.
How to File and Pay HST in Ontario
Once you have calculated how much HST you need to pay or how much you’ll be refunded, you need to remit to the CRA and (if necessary) pay. We addressed this in a previous blog post and even included how you can generate an HST report in Quickbooks - click here to open that post.
If your business exceeds $30,000 in revenue in a quarter then you are required to collect and remit HST to the CRA. The amount you remit to the CRA is simply the difference between what your business collects and pays – that could mean that you have to pay the CRA if you collect more of you are in line for a refund if you pay more.
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Have Your Say
If you have received your HST remittance form and you’re working through the process of filing and remitting payment, we’d love to hear from you. Tell us how you’re finding the process and what best practices work for you. Also, please share this article using the social media share buttons – chances are there are others out there going through the same process!