Small Business HST and Past Due Tax Returns – What You Need to Know

HST has intensified the tax obligation of small business owners. Prior to the HST, many small business owners only had to collect and remit 5% GST. With the amount that must be collected and remitted increased to 13%, the stakes for those who fall behind in filing their HST returns is much higher.

The Canada Revenue Agency is much more aggressive when collecting past due HST as opposed to GST because the tax revenue for the government is now more than double. In conjunction with that, they are also more diligent in their reviews of HST tax returns and claim expenses.

Once tax returns (including GST returns) are more than 4 years past due, the Canada Revenue Agency will not permit the taxpayer to claim input tax credits. The interest and penalties on past due HST and GST returns are massive.

According to the Canada Revenue Agency website http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/bspsbch/rtrns/pnlts-eng.html, when GST/HST returns are filed late the following formula will apply to tabulate the penalty that will be applied to the tax debt:

a) 1% of the amount owing; plus

b) the result of the following calculation:

A x B where A is 25% of the amount you calculated in (a) and B is the number of months the return is overdue (to a maximum of 12 months).

In addition, the Canada Revenue Agency will also charge interest on an overdue amount equal to the basic rate plus 4%. Late filing of a GST return is not the only way you can incur GST penalties. You can also be fined for non-compliance. If you receive a demand to file a return and fail to do so, a penalty of $250 will be charged.

This can cause a GST/HST tax debt to double or even triple in size. Facing this type of tax problem, especially where multiple past due returns are involved, can be paralyzing. It simply can’t be ignored because it will not go away on its own.

Fortunately, there are programs that are not offered through the Canada Revenue Agency but are Federal Government programs that will provide a small business owner tax relief as well as relief of interest and penalties. These programs do not involve bankruptcy, and not only will they eliminate interest and penalties but will also reduce the size of the overall tax debt.

It is best not to wait until the Canada Revenue Agency is pursuing enforcement and collection action. Act now and take the steps necessary to deal with a tax debt. If collection action has already begun, these Federal Government programs will stop all collection action including garnishments and frozen bank accounts.