GST/HST Line 101 Doesn't Match Your Profit and Loss

Does GST/HST line 101 have to equal the sales on my profit and loss?

No, and it often will not. Line 101, "total sales and other revenue," is a figure the CRA defines for one reporting period. The profit and loss is an accounting statement built on a different basis, so the two are expected to differ by items you can name and support. Neither figure is right by default: a document decides each difference, and it is then fixed in the books, fixed on the return, or kept as a normal difference.

Under the regular method, line 101 is the revenue from your sales of goods and services for the period, zero-rated sales (taxed at a zero rate, as most exports are) and exempt sales (no tax) included. It leaves out provincial sales tax, GST, HST and any amounts already reported on a previous return, and it is rounded to the nearest dollar (CRA: return instructions). A Quick Method filer enters taxable sales including the GST/HST (CRA: RC4058).

The two figures normally match only when every sale is posted without tax, invoiced and booked in the same period, and there are no credit notes, deposits or other income accounts.

A mismatch stops being simple when:

• the gap is still there after the steps below;
• the Quick Method applies;
• the gap repeats across several filed periods;
• the CRA has written about the return;
• a corporation must tie year-end statements to its returns.

Gather before you change anything: each filed return for the year, the sales detail by tax code and by invoice date, the profit and loss for the same dates, credit notes and deposit records.

Why is my profit and loss higher than line 101?

The profit and loss is higher when it holds something line 101 leaves out: tax posted inside sales, revenue already reported on an earlier return, or revenue the books recognize before the tax rules do.

Treat an unexplained remainder as an error to find, not a figure to force into agreement.

Why is line 101 higher than my profit and loss?

Line 101 is higher when it counts more than the one "Sales" account you compared it with, or when it includes the tax.

Zero-rated sales are part of the regular-method total even though no tax was charged on them.

Does the Quick Method change what goes on line 101?

Yes. A Quick Method filer enters taxable sales including the GST/HST, multiplies that total by the remittance rate for line 103, and cannot claim input tax credits on operating expenses (CRA: return instructions; CRA: net GST/HST).

Four points to check on a Quick Method mismatch (CRA: RC4058):

• The business still charges the full GST or HST but remits only a portion, so books that record sales before tax show less than line 101 by the tax.
• Supplies on which no tax was charged (zero-rated, exempt, made outside Canada) and supplies not eligible for the calculation stay off line 101. An ineligible supply is accounted for as if the election were not in effect.
• A customer credit or refund of eligible sales comes off the tax-included revenue for the period you credit or pay it, before the remittance rate is applied. The ordinary credit-note deduction does not apply to those supplies, so do not also deduct that tax on line 107 (Excise Tax Act, s. 227(6)).
• If the election was in effect at the start of the fiscal year (for a new registrant, at registration), a credit of 1% applies to the first $30,000 of eligible tax-included revenue across that fiscal year, not afresh on each return. It goes on line 107, not into line 101.

Because line 103 is line 101 times the remittance rate, plus the GST/HST you had to charge on taxable supplies that are not eligible (and are not in line 101), a wrong line 101 changes the tax remitted. For the election and rates, see the GST/HST Quick Method. For where the tax you keep lands in business income, see the Quick Method in the books.

Which period does an invoice, deposit or credit note belong to?

A taxable sale, zero-rated sales included, belongs to the period in which the tax is payable: the earlier of the day the price is paid and the day it becomes due (Excise Tax Act, s. 168). The CRA usually treats payment as due on the invoice date or the date an agreement sets, whichever comes first (CRA: return instructions).

Other rules set the date for sales of real property, long construction or repair contracts and their holdbacks, and leases or licences (Excise Tax Act, s. 168; s. 152). For holdbacks see construction holdbacks and subcontractors.

Three points are open. Whether an amount is a security deposit or an early payment of the price depends on the agreement. For a regular-method filer, the CRA's line 101 instructions do not say whether a credit note reduces the revenue on line 101; the Act and Memorandum 12-2 address the tax, which goes on line 107. And the Act and CRA guidance give no timing rule for an exempt sale, which carries no tax. Show the treatment the books use on the reconciliation, and confirm it before relying on it for a period already filed.

Compare the profit and loss for the exact dates of the reporting period on the return, not for dates you assume, such as a calendar month, a quarter or the fiscal year. For a reporting period that differs from the fiscal year, see reporting period and fiscal year. For the income side of prepayments, see customer prepayments and unearned revenue.

How do I line up the return, the sales report and the profit and loss before I file?

Build one schedule for the period that starts at the profit and loss and ends at line 101, with a document behind every line.

1. Run the profit and loss and the sales report for the same dates: the reporting period.
2. Run the sales report by invoice date, with the tax code and the tax on each line. Check invoices sent before their printed date, invoices delayed without good reason and payments received before an invoice; leave deposits out until applied.
3. Total the sales report by tax code: taxable, zero-rated, exempt, outside Canada and other revenue. A regular-method filer who files online can enter the split on line 90 (taxable sales, with zero-rated supplies other than exports) and line 91 (exempt supplies, zero-rated exports and other sales and revenue); line 101 then fills in from them (CRA: return instructions).
4. Take total revenue from the profit and loss, from every income account.
5. List each difference with an amount and a document: tax posted in sales, timing, credit notes, deposits, amounts already reported, receipts that are not sales.
6. Check line 103 against line 101 as a rough test. Regular method: for a single rate, compare line 103 with that rate times the sales on which you collected or had to collect tax, counting a taxable sale of capital property once. Leave out tax on a real-property sale you were not required to collect, unless you collected it in error. Line 103 counts tax on paid and unpaid invoices. Quick Method: line 103 is line 101 times the remittance rate that applies, plus the tax on any taxable supplies that are not eligible (CRA: return instructions). A figure far from these is a reason to look for sales posted with tax, a wrong tax code or a missing sale, not a finding.
7. Keep the schedule with the working copy of the return. Records are usually kept for 6 years from the end of the year they relate to, and receipts are not sent when you file electronically (CRA: records to keep).

Which number is right when they still disagree?

Neither, by default. A document decides each item: the invoice, its date and its tax code. Each item then falls into one of three groups: a books error, a return error, or a real difference to keep on the schedule.

The method matters. Under the Quick Method, line 103 comes from line 101, so an error in one changes the tax. Under the regular method, line 103 is entered separately, so line 101 can be wrong while the tax is right, or the reverse (CRA: return instructions).

The income tax return takes its revenue under income tax rules, not from line 101. Whether the GST/HST counts as income is covered in is GST/HST collected income.

I already filed with the wrong line 101: how do I fix it?

Do not file a new return for the period. Adjust the filed return in My Business Account or Represent a Client, or send a signed letter to a tax centre with the business number and RT extension (the RT and four digits that follow the business number), the period and the corrected amounts (CRA: after you file).

The CRA generally limits reassessment to 4 years after the later of the due date and the filing day, and asks that adjustment requests come before that limit (Excise Tax Act, s. 298; CRA policy P-149R). That limit does not apply to a matter where the person made a misrepresentation attributable to neglect, carelessness or wilful default, or committed fraud: the CRA can then assess it at any time (s. 298(4)). Whether an old error falls there turns on the facts. A second exception covers timing: if, when assessing, the CRA finds that tax paid for one reporting period was payable for another, it may assess that other period at any time for that matter (s. 298(5)). The CRA decides each request on its facts and may refuse it in whole or in part.

If the error could lead to a penalty, the CRA points filers to its Voluntary Disclosures Program. Whether an application qualifies, and what relief it brings, depends on the conditions the CRA sets for the program, so check them before you send anything (CRA: after you file). If the CRA has already written about the period, read about reviews and audits before you send an adjustment.

The CRA's instruction covers a mistake on a filed return, and its letter option asks for the corrected amount for each line, so a line 101 error goes through the same adjustment route. The CRA pages do not separately address a change that leaves net tax unchanged: keep the reconciliation that supports the revised sales. For the steps and the interest that follows a tax change, see correcting a filed GST/HST return.

When does a mismatch draw CRA attention?

The CRA's post-assessing review looks at amounts reported on different lines, such as sales against the GST/HST collected on them, and at whether the sales on the GST/HST return match the business income on the income tax return (CRA: post-assessing review). The CRA also states that returns are selected for audit or examination by risk assessment and by random file selection (CRA: audit and examination). Neither page states a mismatch size that draws a review.

In a review, the CRA may ask for the reason for a discrepancy and whether you made zero-rated or exempt supplies or sales outside your province or country (CRA: post-assessing review). It may also ask you to explain the amounts and provide invoices or receipts (CRA: after you file). A one-page schedule from the steps above helps you answer. For what a review involves, see GST/HST reviews and audits.

Example

All figures are Canadian dollars and illustrative.

Ontario consultant posts fees with the HST included

An Ontario consultant invoices $100,000 of fees plus $13,000 HST (13%) and posts $113,000 to sales. The profit and loss shows $113,000. Line 101 (regular method) is $100,000 and line 103 is $13,000. The $13,000 gap is the tax, which belongs in an HST collected account. In this example the books need the correction, not the return: they overstate profit by $13,000 and leave the HST owing out of liabilities.

Alberta online shop with US customers

An Alberta online shop's profit and loss shows $80,000 of sales, all posted without GST, including $15,000 of zero-rated sales to US customers. Line 101 (regular method) is $80,000, not only the $65,000 on which GST was charged. An online filer using the split enters $65,000 on line 90 and the $15,000 on line 91 if those sales are zero-rated exports. GST at 5% on the $65,000 is $3,250 on line 103. Leaving the zero-rated sales off line 101 would understate it by $15,000.

Ontario retailer on the Quick Method

An Ontario retailer on the Quick Method has profit and loss sales of $200,000 before tax, all eligible taxable sales. Line 101 is $226,000: $200,000 plus $26,000 of HST at 13%. Line 103 is $226,000 times the remittance rate that applies. The $26,000 gap is expected. Entering $200,000 on line 101 would understate the base the remittance is calculated on.

Different for you?

• The gap is still there after these checks, it spans more than one filed period, or a CRA letter or review is open: each period needs its own decision, whether to adjust the return, correct the books or both, and the year-end T2125 or T2 may need to follow. Start with correcting a filed GST/HST return and, if a review is open, GST/HST reviews and audits. Rebuilding the periods in order is bookkeeping work.
• You use the Quick Method: see the Quick Method and the Quick Method in the books.
• The GST/HST payable account differs from the CRA's balance: follow reconciling the GST/HST payable to the CRA.
• Your books are months behind: see catching up on overdue books. Bringing them current is bookkeeping work.
• A corporation needs year-end statements that agree with its returns: see year-end financial statements for a corporation. Tying statements to several filed returns is bookkeeping work.
• You are not sure how a sale is taxed: see exempt, zero-rated and out-of-scope sales.
• Your business is located in Québec: most businesses there file their GST/HST returns with Revenu Québec, not the CRA (CRA: RC4022), and this page does not cover its return.