GST/HST Payable Doesn't Match CRA: Refunds, Offsets, Interest

Why doesn't my GST/HST payable match what the CRA shows?

Your GST/HST accounts, taken together, should equal the net tax for every period that has ended, filed or not, adjusted for every payment, instalment and refund recorded against them. With separate collected, paid and payable accounts, an unfiled period's net tax stays in collected and paid until the return is recorded, then moves to GST/HST payable (sales tax payable) once. The CRA's account shows only returns it has processed and payments it has received. It also carries items that never touch your bank: a refund it applied to another debt, a refund it is holding (shown on the transactions page, not in the balance), and interest or penalties.

A bank statement alone cannot prove the payable, because several of those rows never appear on it. Reconcile to the CRA's account, period by period.

GST/HST refundable is money the CRA owes you, so it is an asset. GST/HST payable is money you owe, so it is a liability. If you keep one GST/HST account, a debit balance is the refund: use that account wherever this page says refundable.

The case is simple when one item explains the gap. It is not simple when several periods disagree, a refund was held or applied elsewhere, returns are missing, or the CRA reassessed a return. If the steps below leave more than one difference you cannot explain, have the periods checked by a professional.

Gather: the CRA balance and transactions by period at the date you are reconciling, each filed return, notices from the CRA, payment confirmations and bank statements. The last section lists them in full.

In Québec, Revenu Québec generally administers the GST/HST (RC4022), so the CRA steps here usually do not apply. Confirm which agency holds your account.

Where do I see the CRA's balance, and what do I compare it to?

Sign in to My Business Account (an authorized representative uses Represent a Client), choose GST/HST and the business's RT number, then View and pay account balance (CRA: after you file; CRA: remit or pay). Compare it, period by period, to the payable account for the same date. If you cannot see the account, ask whoever files the returns for the balance and transactions.

1. Read the balance by period. The account shows an interim balance from payments and credits received for a period not yet assessed, and a debit or credit balance with accrued interest for an assessed period. A period-end with no payments or credits and no processed return shows no balance (CRA: account balance FAQ). The Returns list on the account overview shows the returns expected and filed (CRA: after you file).
2. Open the transactions. Select a period end, balance or total to see the transactions behind it. Held, not yet applied and disputed credits do not appear on the balance page but do appear on the transactions page (CRA: account balance FAQ).
3. Add interest to a date. Interest is updated daily on the account. Calculate future balance shows the balance with interest to a date you choose (CRA: account balance FAQ).
4. Line up the payable. List the same period's return, payments and refunds from your ledger beside the CRA's transactions.

An annual filer who pays instalments also receives a statement of interim payments once a year. It confirms the payments received, shows instalment credit balances and transfers, and shows how the CRA applied the credits to assessments (RC4022).

Timing matters at a year end. The CRA asks you to allow 3 business days for an online payment, and 10 business days plus mailing time for a cheque, before checking where a payment went (CRA: confirm a payment). A payment made in the last days of the year can sit in the books and not yet in the CRA's account. Compare each period, not only the total: one payment applied to the wrong period can leave the total looking right while both periods are wrong.

How do I record an HST or GST refund from the CRA?

Record the refund when you file the return, then clear it when the money arrives. A return whose balance on line 113C is negative claims the refund on line 114 (CRA: return instructions).

The first row fits only a negative net tax. If instalments exceed a positive net tax, record the net tax as owing first (see the instalments section). The debit left in GST/HST payable is the refund; to use a separate refundable account, debit refundable and credit payable for that amount.

The CRA says it normally issues refunds within 4 weeks of receiving the return, and that a return missing information or completed incorrectly can delay it (CRA: after you file). The set-up of the collected, paid and refundable accounts is in GST/HST in your books.

If the deposit differs from the refundable balance, the usual reasons are:

• Smaller deposit: the CRA applied part of the refund to another debt, or reassessed the return.
• Larger deposit: the CRA added interest. The next section covers it.
• No deposit: the CRA held the refund or applied all of it elsewhere. A refund of $2 or less is not paid out either: the CRA applies it to any existing liability (CRA: return instructions).

Match the deposit to the refund claimed on line 114, then to the CRA's transactions for that period.

How do I record an HST or GST refund the CRA applied to a balance owing?

Debit the balance the CRA paid off and credit GST/HST refundable. The bank is not touched, because no money moved.

The CRA says that when a registrant has missing returns or unpaid amounts under other acts it administers, including the Income Tax Act and the Excise Tax Act, it can hold the refund. It also says it can use a refund or rebate to pay the outstanding amount (CRA: after you file).

Personal income tax is not a business expense, so for a sole proprietor it goes to drawings. Take the split between tax and interest from the CRA's transactions, not from the refund total.

Then check both sides. The amount should show as a credit in the account that was paid, and the other account's balance should fall by the same amount. If it does not, the CRA applied it to a different period or account.

Why did the CRA keep my refund, and how do I get it released?

The CRA holds a refund when a required return is missing, an amount is unpaid, or the registration details are incomplete or wrong. The Act has the CRA pay a refund with all due dispatch after the return is filed, but not while a required return is outstanding (s. 229(1) and (2); s. 230(1) and (2) for instalments above the net tax). Clearing the cause is the way to get it released; no date is guaranteed.

For a sole proprietor or a partner, the CRA also holds the personal income tax refund while the business has missing returns or unpaid amounts (CRA: after you file).

To find the cause, check the Returns list on the account overview, then the transactions for the period. Held credits show on the transactions page.

In the books, leave a held refund in GST/HST refundable with a note giving the reason. It is not cash that is merely late: the CRA can use it to pay the outstanding amounts once the returns are filed. Missing returns are in unfiled returns and estimated assessments. A balance you cannot pay at once is in payment arrangements for business debt.

How do I record GST/HST instalments if I file once a year?

Post each instalment as a debit to GST/HST payable, not to an expense. An instalment is a payment on the year's net tax, so it builds a debit balance until the annual return is filed.

An annual filer whose net tax for the previous fiscal year is $3,000 or more may have to pay quarterly instalments (CRA: do you need to pay by instalments). Each is due within one month after the end of a fiscal quarter (Excise Tax Act, s. 237). For a December 31 year-end that is April 30, July 31, October 31 and January 31 (RC4022), so the January 31 instalment falls after year end and only three are paid by December 31. The payment is usually one quarter of the previous year's net tax, or of an estimate of the current year's net tax if you expect it to be lower (CRA: calculate your instalments). The Act uses the lesser of the two as the base, and a base under $3,000 is treated as nil (s. 237(2) and (3)). A previous year shorter than 12 months, such as a first year, is annualized first (net tax divided by the days registered, times 365) (CRA: calculate your instalments).

On the annual return, line 110 holds the instalments paid for the year. A sole proprietor with business income and a December 31 year-end pays the net tax by April 30 but files by June 15, and adds that payment to line 110 (CRA: return instructions; Excise Tax Act, s. 228(2) and s. 238(1)). Instalments above the net tax produce a refund on line 114. A shortfall is the amount owing on line 115.

One trap: instalments coded to expense. The expense is overstated and the payable looks too high. Recode them to GST/HST payable. Interest on a late or short instalment is in the next section; keep it out of the payable.

For most annual filers the return and final payment are due 3 months after the fiscal year-end (CRA: deadlines). The year's net tax is therefore a liability on December 31 even though it is paid later, and the CRA's account shows none of it until the return is filed. Filing dates are in filing GST/HST and input tax credits.

How do I record interest the CRA pays me or charges me?

Keep both outside the payable. Interest received is other income. Interest charged goes in its own lines, apart from ordinary interest expense, so the CRA's balance equals the GST/HST payable plus those lines.

A refund paid within 30 days of the later date earns no interest under that rule. A corporation's refund earns a lower rate than a non-corporate registrant's (CRA: prescribed interest rates; RC4022).

Because the CRA's balance includes interest to the date shown, book the accrued interest at each year end from the account's transactions. Penalties sit in the same balance. The Minister can waive or cancel interest under s. 280, and certain penalties, on its own initiative or on application, within 10 calendar years after the end of the reporting period (s. 281.1). The CRA's balance then falls with no payment: reverse that entry. The entries for interest and penalties charged, and whether any of it is deductible, are in recording CRA reassessments and penalties. The late-filing penalty is in the late GST/HST filing penalty.

My payable still shows a balance after I filed and paid: what usually causes the gap?

The usual causes are a payment posted to another period or account, a payment still in transit, a refund or offset not yet booked, interest or penalties, or a filed return that differs from the books.

To find what is left over, work through the periods, oldest first:

1. Tick each CRA transaction that has a matching ledger entry with the same amount and period.
2. What remains only on the CRA side is usually an offset, interest, a penalty, a reassessment or a payment missing from the books.
3. What remains only on the books side is usually a payment in transit, a return not yet filed, or an instalment or refund booked to another account.
4. Two leftovers of equal amounts and opposite sign in different periods are usually one misposted payment.

What still does not match after that is the part to take to a professional.

When the books and the filed return differ, which one do I fix?

The side that disagrees with the documents is the one that needs correcting. If the return matches the invoices, receipts and credit notes, the books usually need correcting. If the return is wrong, it is usually corrected first and the books follow.

If the return itself is wrong, the CRA says not to file a new return (CRA: after you file). The choice between amending, adjusting and fixing on the next return is in correcting a filed GST/HST return.

Do not clear a difference with a journal entry to an "adjustment" account. It hides which side was wrong, and the same gap returns next period. For line 101 sales against the profit and loss, see when the return does not match the books.

What do I bring to the year-end close?

Bring the CRA's view of the account at year end, the returns and the proof of every payment.

• The CRA GST/HST balance and transactions by period at year end, including held credits.
• Each return filed in the year, with net tax (line 109), instalments and payments (line 110), and the refund (line 114) or amount owing (line 115).
• A list of any period not yet filed.
• Notices of assessment or reassessment, and any notice that a refund was held or applied.
• Payment confirmations and bank statements covering every payment, instalment and deposit.
• The annual statement of interim payments, if you pay instalments.
• The interest and penalties on the account at year end.
• The payroll and income tax balances, if a refund was applied to either.

At year end, allow for payments in transit and for any period not yet filed. Its net tax sits in collected and paid (for an annual filer, the whole year's net tax, less instalments already in payable). The payable should then match the CRA's tax balance, and the interest and penalties lines should match the rest of its balance. Anything unexplained goes to the person preparing the T2 or T2125 before the statements are final. The corporate checklist is in year-end close for a corporation.

Example

All figures are Canadian dollars and illustrative.

A refund applied to overdue payroll deductions

An Ontario corporation's books show an HST refund of C$4,200 owed. The CRA applies it to C$4,200 of overdue income tax withheld from employee pay, so no deposit arrives. The entry debits payroll deductions payable C$4,200 and credits HST refundable C$4,200. The bank is untouched. Both balances fall by C$4,200, and a bank-only reconciliation would never have found the item.

Instalments coded to expense

An Alberta sole proprietor with a December 31 year-end files GST annually and pays four quarterly instalments of C$1,000 for the year, each coded to an expense account. The fourth is paid on January 31, after year end. The return shows net GST of C$3,600. Recoding the C$4,000 from expense to GST payable leaves the payable with a C$3,600 credit (net tax) and a C$4,000 debit (instalments): a C$400 debit balance, the refund on line 114. At December 31 only C$3,000 has been paid, so net tax less instalments stands at C$600 owing until the January instalment turns it into the C$400 refund. Business expenses fall by C$3,000 in the year and C$1,000 in the next.

A refund that arrives with interest

A C$2,000 refund arrives as C$2,038. The C$38 is interest from the CRA. The entry debits bank C$2,038, credits HST refundable C$2,000 and credits other income C$38. The refundable account clears to zero, and the payable is not affected by the interest.

Different for you?

• The balances differ by more than one item you can explain, a refund was held or applied elsewhere, or several periods disagree: the gap may sit in a different period from the one you are checking, and the fix may be to the books, the return or both before year end. Get bookkeeping help, or see catching up on overdue books if the books are months behind.
• The return itself is wrong: see correcting a filed GST/HST return.
• Returns are missing or the CRA estimated an amount: see unfiled returns and estimated assessments.
• The CRA reassessed you or charged penalties: see recording CRA reassessments and penalties.
• You cannot pay the balance: see payment arrangements for business debt. The debt can reach beyond the business: each general partner is jointly and severally liable for a partnership's GST/HST (s. 272.1(5)), and the directors of a corporation that fails to remit net tax can be assessed personally, subject to collection conditions and a due diligence defence, within two years after they last ceased to be a director (s. 323).
• Your corporation's year is closing: see year-end close for a corporation.
• Your business is located in Québec: Revenu Québec generally administers the GST/HST there, so this page's CRA steps usually do not apply. Confirm which agency holds the account.