Updated: Jun 21, 2022
Increase your HST benefit by working with your bookkeeper!
Are you a business owner that gets frustrated every year when your accountant tells you that you owe "X" amount of dollars? Does it seem that you are paying more and more every year? Do you scratch your head thinking, “does it get easier?”.
Trust us, we get it! However, filing and paying your sales tax doesn’t need to be a complicated process, but it is a necessary one. And, you are not alone, every qualified business is subject to this process every year.
We’ve put together some tips for you, to help you better understand the HST process. Our tips will help you work soundly with your bookkeeper/accountant, and see you can get the maximum credits you deserve.
1 - Understanding the GST/HST Process
The GST/HST for your business process is quite simple. It consists of your GST/HST collected or collectible, and your Input Tax Credit.
Your GST/HST collected or collectible will increase your HST balance, while your ITCs will reduce your HST balance.
Your net HST will consist of your GST/HST collected, less your Input Tax Credit (ITCs). This will be the balance owed for GST/HST to CRA.
Here is an example:
GST/HST collected or collectible
If you are selling goods and services that are not exempt from sales tax, you would charge the respective GST/HST rate (ex. 13% in Ontario) on every invoice that you generate.
As an example, if you were to create $1,000 invoice for your customer, it would look something like this:
Goods or Service: $1,000
HST (13%): $ 130
In the above example, the $130 is your GST/HST collected or collectible and is money that you collect on behalf of CRA. This amount will need to be paid back to CRA periodically, can be quarterly or annually depending on how the GST/HST account is set up.
Input Tax Credit (ITCs)
Similarly, if you received or paid a bill from a supplier, the bill would look something like this:
HST (13%): $ 130
In the above example, the $130 is considered to be your Input Tax Credit (ITCs) and is, depending on the purchase, an allowable credit that will reduce your sales tax balance from your GST/HST collected.
2 - How to ensure your bookkeeper files the most accurate HST return:
It is important to understand that your bookkeeper can only file based on the information that is received. So, in order to file accurate reports and claim your max allowable ITCs, it will require a certain level of organization from the business owner/management.
The following steps will help simplify the process:
Add HST correctly to your invoices: When you’re creating your invoices for your customers, make sure you are adding the appropriate sales tax amount to your invoices for your province.
Submit copies of all your eligible business expenses: Submit your receipts on a regular basis to your bookkeeper. If you file your GST/HST return on a Quarterly (3 month) basis, then your bookkeeper will need all receipts and bills by the end of the period. Example, April to June period would mean you need to file GST/HST by end of July. If filing on an Annual (12 month) basis, your bookkeeper will need all receipts and bills shortly after the period end date to prepare. The annual due date is April 30th.
Verify all information to ensure accuracy: As businesses incur several expenses on a regular basis, expenses can be missed. This is why it is so important to keep accurate records and have a system that makes sure you submit all receipts to your bookkeeper. You can request a detailed HST report from your bookkeeper to verify that all eligible expenses are claimed during that period. This is also an important reason to submit receipts on a regular basis, so that If something is missed you can notify your bookkeeper to ensure that the necessary changes are made well before the deadline.
3 - Filing and Paying your GST/HST
The CRA makes it quite easy to file your GST/HST returns. Your bookkeeper and/or accountant can file by representing you when you assign them to ‘represent a client’ in your CRA online account. You may also receive a letter from the CRA with a 4 digit access code to file through HST/GST Netfile using that access code. You can then use this code to file your GST/HST returns online.
Once you’ve received confirmation that the return is filed, you will want to make payment by the filing deadline (it is also when payment is due) to avoid late penalties and interest charges on your account. You can make payments directly through your business bank account or take a look at the CRA website for other payment options. If you owe $3,000 or more you may be required to make quarterly installment payments in the following fiscal year. Canada Revenue Agency doesn't like to wait for its money, they'll require taxpayers to pay in advance.
Working with your bookkeeper requires proper organization and communication. It is important that you are consistent and follow the steps provided to charge, track, and claim HST properly. This way, your bookkeeper and/or accountant will be able to claim your maximum allowable ITCs.
If you are ever selected for a GST/HST review or audit, the CRA agents will ask to see your receipts and invoices. This is why it is important to submit all supporting documentation as evidence of your purchases and income.
As you grow you may find your invoices and receipts can get out of hand if you are still working manually with your bookkeeper. If so, you should consider using an online accounting software to manage all of your income, expenses, and receipts. There are some good ones out there we can recommend that are cost effective and that will not only improve your relationship with your bookkeeper, but make your life a whole lot easier.
We specialize in this! Schedule a Consultation Call with us to see how we can help support your business and save you time!
Also, if you are a new business owner check out our previous blog on the Top 5 Bookkeeping Practices For Canadian Entrepreneurs!