The GST/HST mistakes that actually get assessed

Most GST/HST assessments on owner-managed corporations come from five habits, none of them arithmetic. Treating a taxable supply as exempt, or claiming the credits behind an exempt one. Claiming input tax credits nothing in the file supports. Charging one rate to every customer regardless of where the supply was made. Remitting on a deposit when the cash arrived rather than when it was applied. And the self-assessments no line on the return asks you about. Each is a posting habit rather than a filing error, which is why they run for years before a letter arrives.

That is also why the bill is a multiple of the entry that caused it. Interest runs from each reporting period’s original due date, and every period carries its own return, so a habit that ran three years is twelve returns if you file quarterly, thirty-six if you file monthly.

Exempt and zero-rated are opposite errors that produce the same invoice

Both leave an invoice with no tax on it. Everything behind that invoice differs.

A zero-rated supply is a taxable supply taxed at 0%. You charge nothing and still claim the input tax credits — the GST/HST you paid on your own purchases — on the costs behind it. Exported services generally sit here. An exempt supply is outside the system in both directions: no tax charged, and no recovery either, so the tax on rent, equipment and software is a cost the business absorbs. Most health care services supplied to patients are exempt rather than zero-rated.

Two assessments come out of confusing them, running in opposite directions. First, a supply treated as exempt that was taxable: the tax is owed whether or not you charged it, and the CRA collects it from you rather than from the customers invoiced without it. Second, credits claimed in full where part of the revenue is exempt. Where a business makes both kinds, credits generally follow the extent to which the purchase was used in commercial activity, and not beyond it. A practice billing mostly exempt services and claiming every credit on its overheads has an error that grows with revenue.

The categories are statutory, and one business often makes more than one kind of supply.

A credit is a claim you have to be able to produce

The CRA’s documentary requirements step up with the size of the purchase, and above a dollar threshold the supplier’s registration number stops being helpful and becomes mandatory. Four failures do most of the damage:

• The support is a credit-card or bank statement line. It shows money left the account, and says nothing about what was bought, from whom, or whether tax was charged.
• The supplier’s registration number is missing on an invoice large enough to require it.
• The invoice is made out to you personally rather than to the corporation.
• The purchase carried no tax to begin with — an exempt or zero-rated supply, or a supplier who is not registered — and a default tax code created a credit anyway.

The last is the quiet one: it produces a clean-looking return built on tax that never existed. What has to be kept, and for how long, is its own subject. There is also a limit on how far back a credit can be claimed, so the recovery side of a correction is not symmetrical with the assessment side.

One rate for every customer is two mistakes, not one

The rate follows where the supply is made, not where your office sits. For goods that generally means the province the order is delivered to, and those mechanics have their own guide. Services and intangibles run on their own place-of-supply rules, which do not read across from the goods answer.

Undercharging is the obvious exposure: the difference is yours to pay, on sales you have already banked. Overcharging is the one owners assume is harmless, and it is not. Tax you charge is tax you owe. Collect at a rate higher than the supply carried and the excess is remitted rather than kept, and the customer’s remedy runs against you rather than against the CRA.

A deposit becomes taxable on the day it is applied

Tax generally becomes payable on the earlier of the day the consideration is paid and the day it becomes due. An amount held as security is generally not consideration until you apply it against the price, so the taxable moment is the application, not the receipt. What separates a deposit from a prepayment is the contract and how the money behaves — held and refundable, or taken on account of the price and gone.

This is not a construction rule, though construction is where the timing is worked through most carefully. An installer taking money before ordering equipment, a shop collecting on a special order, a studio booking a season — same mechanism. The failure has one shape: on the day the tax becomes payable no cash moves, so nothing in the month-end reconciliation raises its hand.

The self-assessments nothing on your return asks about

Almost all the GST/HST an owner deals with arrives on somebody’s invoice. A self-assessment is the case where no invoice carries the tax and the obligation to account for it is yours anyway. Three situations produce most of them, named here by mechanism only:

• Services and intangibles acquired from a non-resident supplier, where the acquisition is not exclusively for use in commercial activity.
• Certain acquisitions of real property by a registrant, where the purchaser accounts for the tax on its own return rather than paying the vendor.
• Property or services brought into a participating province from elsewhere in Canada, where the provincial component may be owed.

Each carries conditions and exclusions that decide whether it applies at all, and none should be applied off a paragraph like this one.

This is where “my accountant handles the GST” stops being quite true. The return is built from your ledger, and the ledger shows a subscription, a legal fee, a purchase — not that the supplier was non-resident or that the use was partly exempt. A preparer can only account for tax the file makes visible, which is why this comes up as questions about who your suppliers are rather than as a review of returns already filed.

A worked example: four ordinary entries in one quarter

Illustrative, round numbers, December 31 year-end, quarterly filer. An incorporated equipment-servicing company, registered, operating from one province with customers in two. No tax figure is computed, because no rate is stated.

A C$12,000 service contract is billed to a customer in the next province at the rate the company charges everyone — its own. Whether that was right turns on where the supply was made. Eight similar contracts over three years put C$96,000 of billings on the same assumption. This is never a question about one invoice.

A C$15,000 deposit arrives in March against a C$60,000 installation, held under the contract as refundable security and correctly posted with no tax. In September the equipment goes in and the deposit is applied against the first billing. Nobody records that the C$15,000 became consideration that day, and no bank entry points at it.

C$2,400 of credits are claimed for the quarter on purchases supported only by statement lines. The corporation may well have paid the tax. It cannot show what it bought.

C$9,600 goes out over the year to a non-resident software vendor, posted as subscriptions. No tax on the invoices, none claimed. Whether any of it should have been self-assessed turns on the vendor’s status and how the software is used, and the file records neither.

One of those four looks like a tax question in the ledger; the other three look like ordinary business. What sets the size of the assessment is how long each habit ran, not how large any entry was.

What Cadence does

We go through the revenue side supply by supply at onboarding — which streams are taxable, which are zero-rated, which are exempt, and where each is made — and set the invoice templates and tax codes from that answer rather than the previous file. On the purchase side we check what supports the credits claimed and which of your suppliers are non-resident, because that is the question a return cannot ask. Deposits get posted as liabilities carrying the date they were applied, so the taxable moment leaves a record. GST/HST returns and remittances are included in the year-round packages and available as an add-on to the C$3,000 Compliance tier, which is annual returns only; the pricing page has the starting fees. Most repair and local service businesses arrive with one of these running quietly. If you think one has, that is a facts question — your last few years of returns, your revenue mix and what is still recoverable on the purchase side. Active audits and formal objections we accept selectively or refer out.