Failing to charge GST/HST when required can have serious financial and legal consequences for your business. Whether it’s an honest mistake or a misunderstanding of tax rules, ignoring your GST/HST obligations can lead to unexpected liabilities. This guide will walk you through what happens if you don’t charge GST/HST, how to correct the mistake, and how to avoid future issues.
Table of Contents
1. Consequences of Not Charging GST/HST
If your business surpasses the $30,000 small supplier threshold but fails to register and charge GST/HST, you may face the following.
- Unpaid Tax Liability: The Canada Revenue Agency (CRA) may require you to remit the GST/HST you should have collected—even if you didn’t charge your customers.
- Penalties and Interest: The CRA can impose penalties and interest on unremitted taxes, increasing your financial burden.
- Audits and Scrutiny: Consistently failing to charge GST/HST can trigger an audit, leading to further compliance checks and potential fines.
2. How to Correct a GST/HST Charging Mistake
If you realize you haven’t been charging GST/HST when you should have, here’s what you can do.
- Register for GST/HST Immediately: If your revenue exceeds $30,000, apply for a business number and register for GST/HST to become compliant.
- Voluntary Disclosure Program (VDP): If you’ve failed to charge GST/HST in previous years, you can apply to the CRA’s VDP to disclose your mistake and possibly reduce penalties.
- Reassess Past Transactions: Identify past sales where GST/HST should have been applied and determine if customers can be billed retroactively.
- Remit Owed Taxes: If you owe GST/HST from past sales, submit the amount to the CRA as soon as possible to minimize penalties and interest.
3. How to Avoid GST/HST Compliance Issues
To prevent future mistakes and ensure compliance, consider the following.
- Understand Taxable Sales: Determine whether your products or services are taxable, zero-rated, or exempt.
- Charge the Correct Rate: Apply the correct GST/HST rate based on your customer’s location.
- Keep Accurate Records: Maintain detailed invoices, receipts, and accounting records to track tax obligations.
- Use Accounting Software: Automate tax calculations with software like QuickBooks or Xero to minimize human error.
- Consult a Tax Professional: If you’re unsure about your GST/HST obligations, seek advice from an accountant to avoid costly mistakes.
Final Thoughts
Not charging GST/HST when required can create financial and legal risks for your business. The best approach is to stay informed, register on time, and maintain proper records. If you’ve already made a mistake, act quickly to correct it and ensure compliance moving forward. Being proactive will save you from potential penalties and financial strain.
