Amend or Adjust a Filed GST/HST Return: Missed Sales or ITCs

Do I amend a filed GST/HST return, adjust it, or fix the mistake on the next one?

Do not file a second return for a period you already filed. The CRA calls the fix an adjustment to the filed return, and a forgotten input tax credit (ITC) is the one correction that usually waits for the next return (CRA: after you file; Guide RC4022). Which way the mistake cuts decides the route.

The CRA's adjustment policy explains the first row. It generally denies a request that only adds ITCs, because the amount can usually be claimed on a later return, unless there are extenuating circumstances, such as a delayed refund causing financial hardship or an amount that can be claimed only within a specific reporting period (CRA policy P-149R).

A case stops being simple when:

• the mistake runs across several periods;
• it adds tax owing, mixes an over-claim with a missed claim, or may carry a penalty;
• the CRA has already contacted you about the return or period;
• the same error also sits in the books and the income tax return, or the books do not show which period is wrong.

Gather before you change anything: a copy of each filed return and its notice of assessment, the general ledger by period with the tax code on each line, and the supplier invoices behind every ITC.

If any of these applies, the filed returns and the books should be read together before anything goes to the CRA: see bookkeeping help.

How do I adjust a filed return in my CRA account or by letter?

Adjust the period online in My Business Account or Represent a Client (the CRA account for authorized representatives), or send a signed letter to your tax centre. The CRA lists two routes (CRA: after you file):

1. Online. Choose GST/HST and your RT number (your GST/HST account), select Adjust a return, pick the period from the list of periods eligible for electronic adjustment, and change the amounts.
2. Letter. The business owner or an authorized representative signs it. It must show your business number and RT extension, the reporting period, the corrected amount for each line on the return, and the name and phone number of someone the CRA can call.

The CRA decides each request on its facts. It may ask for supporting records before or after accepting, and it may refuse a request in whole or in part. If you believe it did not use its discretion reasonably and fairly, you may seek judicial review in the Federal Court (CRA policy P-149R).

After processing, the CRA may send a notice of assessment showing the changes, interest and any penalty. Most business notices appear only in your online CRA account (CRA: after you file). A return filed with Revenu Québec is changed on that agency's own form, not through the CRA (CRA policy P-149R).

Can I still claim input tax credits I forgot, and how far back?

You can usually still claim a forgotten ITC on a later GST/HST return, if the claim window for that period is still open. Include the omitted amount on line 106 of the next return you file (CRA policy P-149R). Check the method first: on the Quick Method you generally cannot claim ITCs for most purchases, so those are not missed credits (CRA: Quick Method; GST/HST Quick Method).

In both cases the claim must be on a return filed by the due date of the return for the last reporting period that ends inside the window. A charity, or a registrant other than such a financial institution whose supplies (other than financial services) were all or substantially all taxable in either of the two preceding fiscal years, is not a specified person by the threshold test. Two narrow cases, where the supplier did not charge the tax in time or someone else claimed the credit, have their own windows (Excise Tax Act, section 225; CRA: input tax credit).

This window only limits claiming. It is separate from how long the CRA can reassess, covered below. The ITC still needs a supplier invoice with the required details; see what a receipt must show and filing GST/HST and ITCs. A claim for an expense already deducted on an income tax return has a second step, covered in the T2125 and T2 section below.

I left out sales or tax: how do I report it, and what interest or penalties follow?

Report it by adjusting the filed period, so the tax shows in the period it belongs to. Interest runs from the first day after the original due date until the day the amount is paid, not from the day you found the mistake (Excise Tax Act, section 280).

The rate is the CRA's prescribed rate: the basic rate (the average 90-day Treasury bill rate, rounded up to a whole percentage) plus 4%. It resets each quarter, and unpaid interest itself bears interest (CRA: Memorandum 16.2; CRA: prescribed interest rates). For rates and relief in general, see penalties, interest and relief. Interest on an amount stops on the day that amount is paid; interest already built up stays owing and shows on the CRA's notice. If the filed return claimed a refund that the CRA paid, or applied to another debt, the excess refund is a separate amount due on that day, so interest on it runs from then, while interest on any added net tax still runs from the original due date (Excise Tax Act, section 230.1).

A penalty is not automatic with interest. The false statement penalty applies only where a person knowingly, or in circumstances amounting to gross negligence, makes or takes part in, assents to or acquiesces in a false statement or omission on a return. It is the greater of $250 and 25% of the total of the net-tax understatement, any understated tax payable and any overstated rebate that the false statement or omission caused (Excise Tax Act, section 285). Whether an omission meets that test depends on the facts. A return that was filed late carries a separate late-filing penalty: see late GST/HST filing penalty.

Added tax, interest and penalties can reach people. A sole proprietor owes them personally. General partners and former general partners owe partnership GST/HST that came due while they were members (Excise Tax Act, section 272.1(5)). A corporation's directors at the time the net tax, or an excess refund, was due can be assessed with it once the Act's collection conditions are met; due diligence is a defence, and the CRA must assess within two years after the person last ceased to be a director (Excise Tax Act, section 323).

If you charged no tax at all while registered, see registered but did not charge GST/HST. If whole periods were never filed, see unfiled GST/HST returns.

I over-claimed ITCs: what do I fix?

Usually adjust the filed return for that period. An over-claim means the period's net tax came out too low, so the amount owing rises, with interest from the period's original due date. If the return claimed a refund that was paid, interest on the excess refund runs from the day it was paid (see the interest rules above). The CRA tells filers to adjust the filed return to raise tax collected or to correct recaptured ITCs (Guide RC4022). Neither it nor the CRA's adjustment policy separately addresses an over-claimed ITC, so confirm the route for yours before you send the request (CRA policy P-149R).

Typical causes, such as the personal share of a mixed-use cost, a restricted expense or tax claimed on a purchase that carried none, are in expenses with no or partial ITC. The same penalty test applies as for omitted sales.

If the same period also has ITCs you missed, put both in one adjustment. The corrected net tax is then the figure that matters.

How does the fix change my T2125 expenses or my corporation's T2?

An ITC lowers the expense it relates to on the income tax return. If you claimed the ITC and left the full GST/HST in the expense, remove it from the expense; the GST/HST return is unchanged if the ITC was valid. The CRA lets a business deduct the GST/HST it incurs only after subtracting the ITC it claimed, and says to reduce the expense on Form T2125 by the ITC when the tax was paid or became payable, whichever is earlier (CRA: T2125 expenses; Guide T4002, chapter 3).

An ITC that cannot reduce an expense goes in income on line 8230 of the T2125, and one on depreciable property lowers its capital cost and so the capital cost allowance (CCA) (Guide T4002, chapter 2; see also is GST/HST collected income). The reverse also holds: if an over-claimed ITC is removed, the GST/HST it covered generally stays part of that expense or asset cost, so the income tax return may need to change in that direction too, subject to the expense's own limits.

How to change the income tax return depends on who filed it:

Which income tax year takes a late-claimed credit is set by the Income Tax Act; the guides cited on this page do not address it. Section 248(16) applies to any taxpayer, a corporation included, and treats the ITC as government assistance received at a time that depends on which return claims it and, for a later return, on the registrant's threshold amount for the fiscal year in which the tax was paid or became payable: roughly the taxable sales of the registrant and its associated persons in the year before (Income Tax Act, section 248; Excise Tax Act, section 249).

• Claimed on the return for the period in which the tax was paid or became payable, as when you adjust that period: received when the tax was paid or became payable, so the earlier year's return changes.
• Claimed on a later return, with a threshold amount of $500,000 or less: received at the end of the reporting period in which it is claimed, so it belongs to that income tax year, not the earlier one.
• Claimed on a later return, with a higher threshold amount: received when the tax was paid or became payable if claimed at least 120 days before the normal reassessment period for that earlier year ends. Otherwise it is received on the last day of the earliest later taxation year whose normal reassessment period ends at least 120 days after the claim.

Which year takes the credit decides which return is corrected, so it needs a professional's read of both years.

If sales were missing from the GST/HST return because they were missing from the books, they may be missing from the income tax return too.

How far back can the CRA reassess after I adjust?

The CRA can generally reassess a GST/HST return up to 4 years after the later of the return's due date and the day it was filed (Excise Tax Act, section 298). The CRA asks you to submit an adjustment request before that limit runs out (CRA policy P-149R).

The limit has exceptions. The CRA can assess a matter at any time if the person made a misrepresentation attributable to neglect, carelessness or wilful default, committed fraud, or filed a waiver. It can also assess another period at any time if, in making an assessment, it finds that tax was paid for the wrong period. So a careless error found years later is not safely closed by the passage of time.

Records are a separate clock. Keep them for 6 years after the end of the year they relate to (Guide RC4022; Excise Tax Act, section 286). For the general rules, see how far back the CRA can reassess.

When is a voluntary disclosure better than a simple adjustment?

The Voluntary Disclosures Program is for errors or omissions that may carry interest or a penalty, and the CRA sets the conditions. Whether it fits a given omission depends on its age, whether the CRA has already acted, and what you disclose. The CRA points filers to it when errors or omissions may result in a penalty (CRA: after you file). Among its conditions (CRA: eligibility):

• the application comes before an audit or investigation has begun against you or a related person on the information you disclose;
• it discloses all relevant information and documents for the periods involved;
• it includes an error or omission with interest or penalties;
• the information is at least one year or one reporting period past its filing due date;
• it includes payment of the estimated tax, or a request for a payment arrangement.

Relief is at the CRA's discretion, and its level depends on whether the CRA had already contacted you about an identified issue, or already held third-party information about it (CRA: GST/HST Memorandum 16-5-1). Typically not eligible are an application that only adds ITCs with no matching increase in tax for the period (so a forgotten ITC alone goes on the next return), one that relates to returns ending in a refund or no tax or penalties owing, and one that seeks relief on interest or penalties the CRA has already assessed. Whether an adjustment filed first affects a later application depends on the facts, so settle the route before you send either. Rates, steps and what changes after a CRA contact are in reviews, audits and voluntary disclosure.

What do I change in the books once the return is corrected?

Make the books tell the same story as the corrected return, period by period.

1. Correct the tax code on each affected transaction (taxable, zero-rated, exempt or no tax), so the GST/HST report for the period ties to the corrected lines.
2. Record the amount owing or recoverable against GST/HST payable, and match it to the CRA's notice of assessment when it arrives. See reconciling GST/HST payable to the CRA.
3. Record interest and any penalty separately from the tax. See recording CRA reassessments and penalties.
4. Remove ITCs from expense accounts, or add the amounts to income where the CRA's rule requires it, and correct the income tax return as above.
5. Keep the adjustment request or letter, the CRA's confirmation, the notice and your working papers with the period's records.

If the return and the books still disagree after this, see why the GST/HST return does not match the books.

Example

These examples are illustrative; all amounts are Canadian dollars.

A sole proprietor missed ITCs

An Alberta sole proprietor on the regular method files an annual GST return and finds C$2,000 of GST on documented business purchases from last year that she never claimed. Nothing else is wrong in that period. She does not adjust the old return. She puts C$2,000 on line 106 of her next return, well inside the claim window. Last year's T2125 deducted the GST as part of each expense, because no ITC had been claimed. In this illustration her threshold amount for last year (roughly, her taxable sales the year before) is C$500,000 or less, so the Income Tax Act treats the credit as assistance received at the end of the reporting period in which she claims it. It is reported on this year's T2125 (on line 8230 unless it can reduce a current expense or asset cost), and last year's T2125 stays as filed. A different threshold amount changes the year.

A corporation left sales off its second-quarter return

An Ontario corporation finds that its second-quarter return left off C$40,000 of taxable Ontario sales, invoiced with 13% HST on top. That is C$5,200 of HST. It adjusts that quarter in its CRA account, or by signed letter. Interest runs on the C$5,200 from that quarter's original due date until it is paid. If it also missed C$900 of ITCs in the same quarter, both go in the same adjustment, the added net tax is C$4,300, and interest runs on that amount instead. It then checks whether the C$40,000 is in its books and on its T2, and may need to request a T2 reassessment if it is not.

A consultant claimed the HST twice

A self-employed consultant buys C$10,000 of services and pays C$1,300 of HST. The books record C$11,300 as an expense, and the consultant also claims the C$1,300 as an ITC. The T2125 expense is C$1,300 too high and should show C$10,000. If the ITC was valid, the GST/HST return is unchanged and the personal return for that year is the one that changes. The books move C$1,300 out of the expense account.

Different for you?

• The error spans several periods, adds tax owing, mixes an over-claim with a missed claim, or may bring penalties: each period needs its own route (adjust, disclose, or wait for the next return), and the books and the income tax return have to follow. That needs a professional's read of the filed returns and the books behind them: bookkeeping help.
• The books are behind, you cannot tell which period is wrong, or you took over from a bookkeeper or accountant who missed or misfiled returns: see catching up on overdue books and accountant missed filings or stopped responding.
• The CRA has opened a review or audit on the period: read GST/HST reviews and audits before you send an adjustment.
• Returns were never filed, or the CRA estimated them: see unfiled GST/HST returns.
• You were registered and never charged the tax: see registered but did not charge GST/HST.
• A reassessment brought interest or penalties: see recording CRA reassessments and penalties and penalties, interest and relief.
• You run a partnership: the registrant adjusts its own GST/HST return, and its expense figures also feed each partner's return, so the same error can sit in several returns. Confirm the route before you change a partner's return.