Registered for GST/HST but Forgot to Charge It

Registered for GST/HST but did not charge it: do I still owe the tax?

A registrant answers to the CRA for GST/HST on its taxable sales from the effective date of registration, whether or not it charged customers. The Excise Tax Act requires anyone who makes a taxable sale to collect the tax for the Crown (section 221). The amount owing for a period counts tax you were required to collect, not only tax you actually collected, and a positive amount must be paid to the CRA (section 225; section 228). The CRA's policy on silent invoices says the same: the supplier still remits whether or not it collected (Policy P-116).

So the tax is the registrant's debt to the CRA first. If clients cannot or will not pay it, or the price already included it, the cost falls on the registrant. Whether it can be recovered from clients turns on what the contract or invoice said. A sole proprietor owes it personally, and partners other than limited partners are jointly liable for the partnership's GST/HST (section 272.1(5)). A corporation's directors can be jointly liable for its unremitted net tax, unless they took reasonable care, once collection from the corporation has failed or it is wound up or bankrupt; the CRA cannot assess a director more than two years after the person last ceased to be one (section 323). See catching up on unfiled corporate returns.

A case is not simple when:

• the uncharged sales fall in more than one return period;
• the contract or invoice says nothing about tax;
• clients are consumers, or businesses that may refuse a bill-back;
• you cannot tell which sales were taxable, zero-rated or exempt;
• the business uses the Quick Method of accounting;
• filed returns left the sales off, or showed them with no tax;
• the CRA has already written or started a review;
• a corporation or several years are involved.

Gather the registration effective date, every invoice and contract since then (plus any signed earlier but paid later), the returns filed, which clients are registered, and supplier invoices for business expenses.

If your business is located in Quebec, Revenu Québec generally administers the GST/HST and receives your returns (CRA), so the CRA steps below may not apply as written.

Which sales did I have to charge GST/HST on?

The effective date of registration decides the first sale: the CRA says to charge GST/HST on taxable supplies starting on that date (CRA).

Only taxable sales carry tax. A zero-rated sale is taxed at a nil rate (section 165), and an exempt sale is not taxable (section 123). If you cannot tell which yours were, see exempt, zero-rated and out-of-scope sales. For who must register and when, see when to register for GST/HST.

An older contract is a timing question. The Act treats an agreement as a supply made when it is entered into (section 133), and makes tax payable on the earlier of the day the consideration is paid and the day it becomes due (section 168). The CRA usually treats a payment as due on the invoice date or the date set in an agreement (CRA return instructions). That is the general rule: section 168 has its own timing for goods (tax is payable by the end of the month after they are transferred to the buyer, even if the invoice is not yet due), long construction contracts, holdbacks and deposits. For a contract signed before registration, signing does not by itself exempt later payments. An amount that became due or was paid while the supplier was a small supplier and neither registered nor required to be registered is generally left out of the tax, apart from exceptions such as real property sales (section 166; section 123, "registrant"). That status ends when registration was required, which can be before the account was opened. Amounts first due or paid after that generally carry tax, subject to the special timing rules. See GST/HST on deposits and unpaid invoices and construction holdbacks and subcontractors.

Was my price tax-included, or does the tax go on top?

It depends on what the contract, quote or invoice said and on the supplier's records. A registrant must show the tax on the invoice, receipt or written agreement, or state that the price includes it (section 223).

Policy P-116 says that disclosure must be overt, not presumed, and that whether the agreed price already included the tax is for the parties to settle. P-116 and the CRA's assessment policy, P-118R, are administrative policy, not law. P-116 dates from 1994 and P-118R was last revised in 1999, and the CRA notes they may not reflect later law changes.

Silence alone does not make a price tax-included.

How is the tax worked out on a price I already quoted?

The same price gives two different amounts of tax. With tax on top, it is the rate times the price. With tax inside, it is a smaller share of the price, as the examples below show. The rate depends on where the supply is made, not simply where the business is based (CRA). See charging GST/HST, PST and QST by province for the rate and tax-included prices for the arithmetic. If invoices already carry the wrong rate, see charged the wrong rate.

Can I bill my clients for the tax now, or add it to existing contracts?

A registrant can often send a corrected invoice, but the client may refuse, and the registrant's duty to the CRA does not wait for the client.

• A lawsuit comes after remitting. A supplier that has accounted for or remitted the tax can sue the client to recover it as a debt, if the invoice or agreement met the tax-disclosure rule (section 224).
• A corrected invoice can work. P-116 says the CRA generally accepts disclosure after the fact where no contractual or common-law restriction stands in the way. Whether a contract lets the supplier add tax later is a legal question, and the CRA does not take part in that dispute.
• A refusal is a price dispute. The CRA confirms to the recipient that tax is payable, and leaves the question of who bears it to the parties.
• A contract still running. Each new invoice must show the tax or state that the price includes it (section 223). Whether the contract lets the supplier add tax from now on is a legal question for the parties.
• A registered client may recover it. A registered client may claim an input tax credit (ITC) on tax it pays, to the extent the purchase is for its commercial activities, if it holds an invoice with the required details and claims in time (CRA). The usual limit is four years from the purchase period, so it may have run out for older sales. If the supplier did not charge the tax within that time and tells the client in writing that the CRA assessed it for the tax, a client that then pays can claim by the filing deadline for the period it pays (section 225(4)). A client that is not a registrant cannot claim, so any tax it agrees to pay is a cost to it.

If the registrant chooses not to bill, or cannot collect, it still remits, so the tax is in effect paid from its own funds. If it bills and the client never pays, a bad-debt deduction may recover the tax once the debt is written off, if the tax was reported and remitted, the client deals at arm's length, and the claim is made within 4 years after the due date of the return for the write-off period (section 231; see bad debts and unpaid invoices).

Can I claim input tax credits for those periods, and how far back?

Yes, for eligible business purchases made while registered, if the claim is in time and the invoices carry the required details. The exception is the Quick Method, which allows no credits on most purchases (CRA). Claim on the return for the period of purchase, or on a later return within the time limit. The deadline is the due date of the return for the last reporting period that ends within four years after the end of the purchase period. A shorter window applies to some large businesses and listed financial institutions (CRA).

ITCs reduce the amount owed, because net tax is tax collectible minus credits (section 225). Leaving out credits the business is entitled to overstates the amount owed. Check which credits earlier returns already claimed; the same credit cannot be claimed twice.

An expired claim window does not always mean an old credit is lost: when it assesses a period, the CRA must take qualifying unclaimed credits into account, even ones barred only by the expired claim period, if the invoice requirements were met (section 296(2)). Keep purchase records for every period; on a return, the ordinary deadline still governs.

The CRA's policy generally denies a request that only adds ITCs, with no matching increase in tax for that period, and says to put the credit on line 106 of the next return. A correction that also adds tax is not covered by that wording, and the CRA may refuse any request in whole or in part, so confirm the route first (Policy P-149R). Tax paid before registering is covered in claiming GST/HST paid before registering. For receipt details, see receipt details for ITCs.

Did my filed returns report these sales?

The tax owed is the same either way, but the correction differs. The rows below assume the regular method; Quick Method returns are worked differently.

Report each amount on the return for the period in which the tax became payable, generally the earlier of the payment date and the due date, with the special timing above (section 168). The CRA says not to file a new return to fix an old one (CRA). How to adjust a return, and the time limit for asking, are in correcting a filed GST/HST return. For the matching entry in the books and how the tax sits in sales and expenses, see is GST/HST collected income.

What interest and penalties apply, and can a voluntary disclosure reduce them?

Interest always applies to unremitted tax; the penalties below apply only in their own cases. A voluntary disclosure can reduce interest and penalties, but not the tax.

Interest runs on each period's unremitted tax from the day after the payment was due until it is paid, at a prescribed rate (section 280). Payment is usually due with the return. An individual with business income who files for a calendar year must pay by April 30 even though the return is due June 15 (section 228(2); section 238(1)), and late instalments carry interest too. The CRA resets the rate every quarter (CRA rates).

A voluntary disclosure must be made before an audit or investigation starts against you or a related taxpayer on the information, must be complete for the periods involved, must cover information at least one year or one reporting period past its filing due date and include an error or omission that carries interest or penalties, and must include payment of the estimated tax owing or a request for a payment arrangement (CRA eligibility). Whether one is open turns on the facts; see correcting a filed GST/HST return. Relief depends on whether the application is prompted (CRA decision):

Tax owing is still payable in full (GST/HST Memorandum 16-5-1).

If the client is a registrant who would have been entitled to a full ITC on the tax, the sale may be a wash transaction: a voluntary disclosure can give full relief of interest and penalties on a sale that qualifies (Memorandum 16-5-1), and the CRA may also consider reducing them during an audit or after an assessment, on conditions such as a satisfactory compliance record (GST/HST Memorandum 16-3-1). Outside a voluntary disclosure, the CRA may waive or cancel interest and late-filing penalties on request within 10 calendar years after the end of the reporting period (section 281.1); see penalties, interest and relief.

How far back does this reach?

Three different time limits apply, each counted from a different date.

What if the CRA has already contacted me?

If the CRA has started an audit or investigation on the issue, a voluntary disclosure is closed for it, though wash-transaction and taxpayer relief (above) may remain. An audit or investigation by another authority, such as a law enforcement agency or securities commission, has the same effect on the voluntary disclosure. If the CRA has written about a specific error or omission but has not started an audit, an application can still be made, but it is normally prompted. A letter that only offers general guidance does not make it prompted (CRA decision).

Note which periods and issues the letter names, and the response date. For what a review covers and how to support your credits, see GST/HST reviews and audits.

How do I word quotes, contracts and invoices from now on?

In the written agreement or on each invoice, show the price and the tax in a way that clearly indicates the tax, or state that the price includes it (section 223). Where an invoice shows the tax or the rate, it must show the total tax or the total rate; for HST, that is the combined rate, not the federal and provincial parts (CRA).

For a longer contract, say which applies in the agreement itself, so each invoice follows it. A buyer claiming an ITC needs more invoice detail on larger sales; see receipt details for ITCs.

Example

These examples are illustrative. Amounts are in Canadian dollars.

Silent contracts: the wording decides

An Ontario designer with Ontario clients has a registration that takes effect on 1 January. Six invoices of C$5,000 (C$30,000 in total) are dated after that and show no tax, and the contracts say nothing about it. If the price was tax on top, the HST at 13% is C$3,900. If the contracts had said the price included tax, the tax inside is 13/113 of C$30,000, about C$3,450. For silent contracts the CRA's assessment policy starts from the C$3,900 figure unless the designer's records or practice show the price included tax, so the designer reads every contract and invoice before working out the amount.

A business client and a corrected invoice

An Ontario consultant has a C$50,000 contract with an Ontario client and sent an invoice that was silent on tax. The client is a registered business and accepts that tax is on top. The consultant remits and sends a corrected invoice for C$6,500 of HST (13% of C$50,000). The client may claim that HST as an ITC if eligible, or may refuse to pay. The consultant remits the tax whether or not the client pays.

Three quarters of missed GST

An Alberta corporation, registered since January, sells C$120,000 of services to Alberta clients over eight months, January to August, at C$15,000 a month, and charges no GST. It files quarterly, and its returns showed no GST on those sales. The prices were tax on top, so GST at 5% is owed:

Interest runs on each quarter's amount from the day after that quarter's due date, one month after the quarter ends, so the January to March amount has been accruing longest. Had the prices included tax, the tax inside would be 5/105 of C$120,000, about C$5,714. The corporation would correct three returns. The amount owed would be reduced by any ITCs not yet claimed, and whether a voluntary disclosure is open depends on the facts.

Different for you?

• The uncharged sales span several returns, the CRA has already written, your clients are businesses that may dispute a bill-back, or you cannot tell which sales were taxable: these need each invoice matched to its return period, and whether a voluntary disclosure applies depends on the facts. Gather the registration date, invoices, contracts and returns, then see bookkeeping support.
• You charged tax before you had a GST/HST number: see charged GST/HST before registering.
• You charged the wrong rate: see charged the wrong GST/HST rate.
• You need the tax inside a price: see tax-included prices and GST/HST.
• You use the Quick Method: you remit a set percentage of revenue including the tax and have no credits on most purchases, so the sums here differ; see the GST/HST Quick Method.
• Your clients are outside Canada: a qualifying export may be zero-rated; see charging GST/HST to US customers.
• Your business is in Quebec, or you sell in British Columbia, Saskatchewan or Manitoba: Quebec returns go to Revenu Québec, and the separate provincial taxes are in provincial sales tax.
• Returns were never filed, or the CRA estimated an amount: see unfiled GST/HST returns and estimated assessments.
• Your corporation is behind on its T2, GST/HST and payroll for years: see catching up on unfiled corporate returns.