Charged GST/HST Before Registering: Refund or Remit?

Charged GST/HST before I had a number: do I keep it, refund it or remit it?

On the CRA's reading, the amount is not yours to keep: the Excise Tax Act treats an amount collected as GST/HST as held in trust for the Crown until it is remitted (section 222). What you do with it turns on one question: were you required to register when you charged it?

You were a small supplier if your taxable sales, counting any associated business, stayed at or under $30,000 in each calendar quarter and across the last four quarters. Over it on either test, you were required to register; the dates are below.

The case is not simple when taxable sales are near or over $30,000, the invoices run over several months, an associated business also sells, a registrant client is asking for your number, a CRA letter has arrived, or the business is a corporation. It also gets harder once you collected the tax more than 2 years ago.

Gather every invoice that shows tax, the date each was paid, which customers are GST/HST registrants, the date you first charged tax, your sales by calendar quarter (including any associated business), and any CRA letter.

If your business is located in Québec, Revenu Québec generally administers the GST/HST, so the CRA steps on this page may not apply as written (RC4022).

Why does the CRA treat tax I collected as the government's, even though I was not registered?

On the CRA's reading, the trust rule follows the collecting, not the registration. Section 222(1) applies to every person who collects an amount as or on account of tax, and the CRA's memorandum on liability for tax says amounts collected as tax are held in trust whether or not they were in fact collectible (Memorandum 3-1).

The same memorandum says no tax is payable on a supply by a small supplier that is neither registered nor required to be registered. So an amount such a supplier labels as tax was never collectible, yet on the CRA's reading it sits in trust until it is dealt with. Treating it as ordinary sales revenue is not one of the two routes in the table above.

Was I required to register, or was I under the small supplier limit?

A person is a small supplier, and not required to register, while worldwide taxable sales stay at or under $30,000 in each calendar quarter and across the last four quarters, counting associates (section 148; section 240(1)). Sales count before expenses, and zero-rated sales count (CRA: when to register).

Apply within 29 days of the effective date (CRA: when to register).

A small supplier that carries on a taxi business must register anyway (section 240(1.1)); for ride-sharing and delivery work, see drivers who never registered. The full test, including what counts, is in when to register for GST/HST.

If I was under the limit, how do I refund customers and fix the invoices?

Adjust unpaid invoices, and refund or credit tax already paid, within 2 years, and issue a credit note. Section 232(1) lets a supplier who charged or collected more tax than was collectible adjust, refund or credit the excess; for a small supplier who was not registered, none was collectible on ordinary goods and services (section 232). Section 166 leaves sales of real property outside that relief, so a small supplier selling real property needs a separate review (section 166).

1. List each invoice with the date tax was charged and the date it was paid. For tax charged but not paid, the window runs from the day charged; for tax collected, the CRA runs it from the day collected (Memorandum 12-2). Each invoice has its own deadline, and an old invoice paid recently may still qualify.
2. If the customer has not paid, adjust the invoice. If the customer has paid, refund the tax or credit it against what they owe you.
3. Issue a credit note within a reasonable time, unless the customer issues a debit note first, which is the customer's own notice of the adjustment (section 232(3)). The required details are a statement that it is a credit note, the supplier's name and registration number, the recipient's name, the date, and the tax adjusted (regulations, section 3).
4. If the customer is a registrant who claimed a credit on that tax, the note makes them add it back to their net tax (section 232(3)(c)).
5. If the customer already received a CRA rebate for the same tax, the note makes them repay the excess: a registrant by the due date of the return for that period, anyone else by the end of the following month (section 232(3)(d)). Ask before you refund.

Section 232 makes a refund optional, but the CRA expects a refund to usually be given when the customer is not a registrant (Memorandum 12-2). A customer who cannot get the tax back from you can apply to the CRA for a rebate of tax paid in error, within 2 years after paying, and cannot also keep a refund from you (CRA: reason code 1C).

Two gaps in the published sources. The credit note rules require a registration number, which you do not have, and the sources do not say what a non-registrant should show on the note. And for tax collected more than 2 years ago, section 232(1) no longer applies while the trust rule does. A tax professional should confirm both points before you send notes or choose to register instead. Listing every invoice with its charge date, payment date and deadline is bookkeeping work.

Can I report and remit the tax without registering?

Yes, the statute provides for it. Net tax counts "all other amounts collected" as tax, and a person who is not a registrant files a return for each calendar month in which net tax is remittable, within 1 month after the month ends (section 225(1); section 238(2); section 245(1)). The CRA says to include tax collected in error in net tax, and to reduce net tax by a refund or credit in the period the credit note is issued (RC4033). A refund in a later month therefore does not cancel an earlier month's due date. With no account number, confirm the filing method with the CRA.

If I register now, can the registration date go back to cover the invoices where I charged tax?

For a voluntary registration, yes for up to 30 days. The effective date is usually the date you apply, and the CRA accepts an earlier date within that window; a corporation's date cannot be before it was incorporated (CRA: register voluntarily).

If you charged tax for more than 30 days before setting up the account, the CRA tells you to call it (RC4022). The online system will not take a date more than 30 days back. An earlier date needs a written request signed by an owner, partner, director or authorized representative, with documents showing when you began charging tax or a breakdown of your sales, and the CRA decides (CRA: backdate registration).

If you were required to register, the date is not a choice; it follows the table above. If it is more than 30 days back, the online system will not take it either: the written request goes with a breakdown of sales showing when taxable sales first passed $30,000. A voluntary registration also commits you going forward: you charge tax on taxable sales, file returns regularly, and stay registered for at least one year unless you stop commercial activities.

The two can be combined: register for the recent invoices inside the window, and refund the older ones under section 232.

What do I remit once I am registered, and can I claim credits on my costs for that period?

You remit net tax for each reporting period (the month, quarter or year a return covers): the tax collected or collectible on your sales in that period, less the input tax credits you claim on the same return, which are the GST/HST you paid on business costs (section 225). Tax on supplies made on or after the effective date goes on the return for the period it belongs to, whether or not you charged it, because net tax counts tax that became collectible as well as tax collected. See registered but did not charge GST/HST.

Credits on tax you paid for business costs in a period when you are a registrant go on that return too. You need sufficient evidence in hand before you file the return that claims them (section 169), and the usual claim window is four years.

Credits on costs from before the registration date follow different rules: see claiming GST/HST paid before registering. Return mechanics are in filing GST/HST and input tax credits. If several periods are now overdue, see unfiled returns and estimated assessments.

My client is a registrant and asked for my GST/HST number: what happens to their credit?

A client can claim a credit only with the prescribed information, and for a total of $100 or more that includes your registration number (regulations, section 3); the CRA says suppliers must show it (CRA: confirming a GST/HST account number). The CRA's position is also that no credit may be claimed where no GST/HST was payable on the supply, and that a false or incorrect number denies the credit (Memorandum 8-4, whose dollar bands are older than the regulation's). Buyers can confirm a number in the CRA's GST/HST Registry.

What to do depends on your position:

• If you were a small supplier not required to register, and do not register: no tax was collectible, so there is no payable tax for the client's credit to rest on. Section 232 allows a refund or credit with a credit note within 2 years.
• If you register with an effective date on or before the invoice date: you may reissue the invoice with your number once it is issued, so the client can support the credit.
• Never give a number that is not yours, or not yet issued. It is false or incorrect for the client's purposes.

Can the CRA charge penalties and interest on tax I collected and did not remit, and can I come forward first?

If you were required to register, interest and the late-filing penalty can run from the due date of each return. A small supplier who collected tax is not outside this: the monthly return and payment are due 1 month after the month ends (see the section above), so interest and the late-filing penalty can run from that date. A voluntary disclosure can reduce both charges, but not the tax itself.

Interest runs on an amount not remitted or paid when required, at the prescribed rate, until it is paid (section 280). The late-filing penalty applies once a required return is overdue (section 280.1); the formula is in late GST/HST filing penalty.

Coming forward before the CRA acts is the Voluntary Disclosures Program. An application must be made before an audit or investigation starts, be complete, include an error or omission with interest or penalties, cover information at least one year or one reporting period past due, and include payment or a payment arrangement request (CRA eligibility). The CRA decides each application. Its normal relief for an unprompted one is 75% of interest and 100% of penalties; relief can be smaller once the CRA has contacted you about the issue (CRA decision).

The CRA can also write first: it may send a notice of intent to register, and you must then apply or satisfy the CRA that registration is not required, or it may register you after 60 days (section 241). For the program in full, see reviews, audits and voluntary disclosure.

How do I show the money in the books until this is sorted out?

Keep it out of sales and in a liability account, named for what it is. This is a bookkeeping practice, not a tax rule; it keeps your sales and profit clean and keeps the cash identifiable.

1. Record each sale at the price before tax.
2. Post the tax charged to a liability account such as GST/HST charged before registration.
3. Keep a list by invoice: customer, date charged, date paid, amount, section 232 deadline and status.
4. Clear it one way: debit it when you refund the customer, or move it to your GST/HST collected account when you report it on a return.

Once registered, use the regular accounts in recording GST/HST in your books. Whether collected tax counts as income is in is GST/HST collected income.

Example

These examples are illustrative. Figures are in Canadian dollars.

Under the limit, HST on one invoice

An Ontario freelancer bills C$20,000 across the last four quarters, with no associates and no quarter over C$30,000. She adds C$390 of HST to a C$3,000 invoice, is paid, and has no number. She was a small supplier, so no tax was collectible. If the invoice were still unpaid, she would adjust it. Once paid, she can refund the C$390 with a credit note, report and remit it on a monthly return without registering, or register voluntarily and remit it. A voluntary registration reaches back 30 days online; an older invoice needs a written request that the CRA decides. A refund needs no CRA decision, but the credit note point above is open. Registering adds returns and a one-year minimum.

Over the limit, GST only

An Alberta consultant bills C$8,000, C$9,000, C$14,000 and C$14,000 in four consecutive quarters, C$45,000 in all, with no associates. The four-quarter total passes C$30,000 in the third quarter, so small-supplier status ends at the end of the month after that quarter. Three invoices dated after that date total C$12,000, and she added 5% GST to each without a number, C$600 in all. She was required to register from her first supply after status ended. She registers, asks in writing for that date because it is more than 30 days back, reports the C$600 on the return for the period, and reviews every other taxable sale since then, including any she charged nothing on. Credits on her business costs for the same periods, if supported by proper invoices, can reduce what she remits.

A registrant client asks for the number

An Ontario consultant with no number invoices a business client C$1,000 plus C$130 HST, a total of C$1,130. The client asks for the number to support the C$130 credit. If the consultant was a small supplier and stays unregistered, she refunds the C$130 with a credit note and the client claims nothing. If she registers with an effective date on or before the invoice date, accepted within 30 days or on a written request, she reissues the invoice with her number and reports the C$130 on her return.

Different for you?

• You have charged tax for months, or a client is asking for your number, and you cannot tell whether you were required to register: the answer sets whether you refund or register, the registration date, and whether to come forward before the CRA writes. Rebuilding sales by quarter and the invoice list is bookkeeping work; the test itself is in when to register for GST/HST.
• You are registered but charged no tax on some sales: see registered but did not charge GST/HST.
• You charged the wrong rate or another province's tax: see charged the wrong GST/HST rate.
• Your prices included tax, or you quoted a price before registering: see tax-included prices and GST/HST.
• You paid tax on equipment or setup costs before registering: see claiming GST/HST paid before registering.
• Returns were never filed, or the CRA has assessed an estimate: see unfiled returns and estimated assessments and get bookkeeping help to rebuild the periods.
• The CRA has written or started a review: a voluntary disclosure may be closed. See GST/HST reviews and audits.
• The business is a corporation: directors can become liable for net tax a corporation fails to remit, in the situations listed in section 323, which also sets a due-diligence defence and a limit of two years after a person last ceased to be a director for assessing that liability. The corporation's sales by quarter and invoice list are the base for the registration question; bookkeeping help rebuilds them, and a director's exposure is worth raising with a tax professional.
• The business is a partnership: general partners are jointly and severally liable with the partnership for amounts payable or remittable while they were members, and a partner at dissolution stays liable afterward; a former member's exposure for earlier amounts is limited to partnership property, and a limited partner who is not a general partner is excluded (section 272.1(5)). Raise the partners and their dates with a tax professional.
• Tax was collected more than 2 years ago, or there are many customers: the section 232 window may have closed for some of them. The invoice list that shows which is bookkeeping work; a tax professional should confirm the choice between refunding and registering.