You Should Have Registered for GST/HST but Didn’t. Here’s How to Fix It
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- Business
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This Is Fixable, and Sooner Is Cheaper
It happens more often than you would think. A side business grows faster than expected, or an owner assumes the $30,000 threshold is per year rather than a rolling four quarters, or nobody checked because the accountant only sees the books in April. Then someone notices that sales crossed the line fourteen months ago and no tax has been charged since.
The situation is recoverable. The CRA deals with late registrations every day, and there is a well-worn path through it. What matters is the order you do things in, because the wrong order can cost you penalties you could have avoided. This is a companion to the registration rules in our complete GST/HST guide.
Key Takeaways
- You owe GST/HST on every taxable sale from the date you were required to register, whether or not you charged it.
- You can register with a back-dated effective date, then file the missing returns and claim your input tax credits for the same period.
- If the CRA has not contacted you, the Voluntary Disclosures Program can remove penalties and reduce interest.
- Business customers will often agree to pay the tax after the fact because they can claim it back. Consumers generally will not.
- The fix costs money. Delaying it costs more, because interest compounds daily and the CRA can find you first.
Work Out Exactly When You Crossed the Line
Start with the date, because everything else depends on it. Pull your sales by month for the last two years and run a rolling total of any four consecutive calendar quarters.
If a single quarter on its own exceeded $30,000, you were required to be registered from the sale that pushed you over, and that sale should have carried tax. If you crossed only on the cumulative four-quarter total, you had one more month as a small supplier and were required to register from the first day of the month after that.
Remember that the threshold counts worldwide taxable and zero-rated sales, before expenses, across any associated businesses. Exempt sales such as residential rent do not count.
Write the effective date down. It is the date you will register from, the date your first return period starts, and the date from which you owe tax.
What You Actually Owe
From the effective date onward, every taxable sale carried GST/HST whether your invoice said so or not. If your invoices showed no tax, the CRA’s usual position is that the price you charged was the pre-tax amount and the tax is owed on top of it. An Ontario business that billed $60,000 without tax over the period owes roughly $7,800, plus interest from each return’s due date.
Two things reduce that number. First, you can claim input tax credits for tax you paid on business purchases during the same period, provided you have the receipts; this is often several thousand dollars that owners forget they are entitled to. Second, if your contracts or invoices stated that prices were tax-inclusive, the tax may be treated as included in what you charged, which lowers the bill by about 11% in an HST province. That argument needs documentary support, so check your terms before assuming.
On top of the tax there is interest, compounded daily at the CRA’s prescribed rate, and a late-filing penalty on each return: 1% of the balance plus 0.25% per month late, capped at twelve months. The penalty is the part a voluntary disclosure can remove.
The Fix, Step by Step
- Register with the correct effective date. Use Business Registration Online or call the CRA business line. The system accepts effective dates up to 30 days in the past without question; further back, you will be asked why, and “I exceeded the threshold on this date” is the correct answer.
- Decide whether to use the Voluntary Disclosures Program first. If the CRA has not already asked about your GST/HST, you may qualify. The application must be voluntary, complete, involve a penalty and be filed before any enforcement action. Accepted applications get penalty relief and partial interest relief. We usually file the disclosure and the registration together so that nothing is on record before the CRA has agreed to the terms.
- Assemble the credits. Go through every business purchase in the period and pull the receipts that meet the documentation rules. This is the tedious part and the one with the best payback.
- File every missing return. One return per reporting period from the effective date, each showing tax collectible on sales and credits claimed. Nil periods still need a return.
- Pay what you can immediately. Interest runs until the balance is cleared. If you cannot pay in full, a payment arrangement stops collection action even though interest continues.
- Talk to your customers. Registered business customers can claim the tax back, so many will accept a corrected invoice for the tax alone. Send it with a short explanation. Consumers are a different matter, and most owners absorb that portion.
Making Sure It Doesn't Happen Again
The root cause is almost always the same: nobody was watching the rolling total. Add a line to your month-end routine that compares the last four quarters of sales against $30,000, or have your bookkeeper flag it. If you are already over, the question disappears; if you are approaching it, decide about voluntary registration before the choice is made for you.
Once registered, set up a separate savings account and move the tax portion of every payment into it as it arrives. It is the single change that prevents both the “spent the tax” problem and the “forgot to file” problem. The rest of the routine, from filing frequency to instalments, is covered in the main guide and the dates are in our business tax calendar.
Behind on GST/HST Registration?
We calculate the date, quantify what you owe net of credits, prepare the voluntary disclosure if you qualify, and file the returns. You get a single number and a plan instead of a stack of notices.
