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Thoughts to Consider on the New GST/HST Penalties


As you are probably well aware, the addition of the Harmonized Sales Tax (“HST”) in the provinces of Ontario and British Columbia have brought some new challenges with respect to charging, collecting and remitting the correct amount of tax.

Are you aware that the Canada Revenue Agency (“CRA”) has made some changes to the penalty provisions to ensure correct disclosure on these amounts?

Electronic filing

The first item you should be aware of is the new rules surrounding electronic filing. The two most common conditions to require electronic filing is

  • Firstly that your taxable supplies in the previous year of you AND your associates are greater than $1.5 million;
  • A second situation that will require electronic reporting is if you are required to report recaptured input tax credits (“RITC’s”) on the HST that you have paid in British Columbia or Ontario.

If you are in either of these situations and you are not electronic filing you could be facing a penalty of $250 for each offense.

It is not uncommon for groups of associated companies to find themselves in situations where they have entities that report monthly, quarterly and annually. Under these new rules and provided the entities are all associated you could be non-compliant and subject to penalties in one or more entities.

Failure to accurately report information

The second penalty provision that you should be aware of is the “failure to accurately report information”. The following is a brief list of details that fall into this category and should these amounts be over/under reported; reported on an incorrect line or not correctly disclosed on the return you may be subject to penalties.

  • Recaptured input tax credits.
  • Sales of grandfathered housing where the purchaser is not entitled to claim a GST/HST new housing rebate or a GST/HST new residential rental property rebate.
  • Sales of housing subject to the HST that was purchased on a grandfathered basis.
  • GST/HST transitional tax adjustments.
  • Transitional new housing rebates.
  • New housing rebates that are assigned to a builder.

Netting out your RITC's

According to the CRA, non-compliance under this provision could be something as simple as “netting out” your RITC’s. To correctly report your RITC’s you must claim the full amount of the entire ITC and then on a separate line on your electronic GST/HST return detail the amount of the recaptured input tax credit (7% for B.C. and 8% for Ontario) for each province.

So, simply claiming the correct amount (netted of the HST recaptured amount) on line 106 of your GST/HST return could result in penalties being triggered under this provision.

You have reported the correct amount of net tax, however you have not disclosed the amounts on the correct line numbers and as such have not correctly reported under this provision.

The CRA states that the penalty amounts under this provision are 5% of the difference between what is reported and what should have been reported plus 1% per month, until the amounts are corrected (to a maximum of 10%). In other situations and cases there may be a penalty of $250 per unreported amount.

So, if you have been ignoring your correct reporting for your entities or are using a short cut to report your recaptured input tax credits you may find yourself owing money to the CRA despite not having shorted any tax.

If you feel that you may be one of these situations contact an Indirect Tax Specialist so that your exposure can be resolved and the financial impact reduced.