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Over $30,000 in sales and still not HST registered

I spoke to a taxpayer today who started their business this year (Feb) and have more than $45,000.00 in sales at this point.

When I asked if they were HST registered they said no and seemed to not even be aware that once they surpass $30,000.00 in sales they must become HST registered.

I can point them to this link:
https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/when-register-charge.html

But what is the best way to go about from here to correct their situation?

  • Will they just need to back the HST out of their sales above $30,000.00 and take the hit?

I had a client in the same situation who ignored my advise to register for HST for 2 years after they cross the $30k in sales. On the third year they received a letter from HST with a bill for 13% of the gross sales for the two years. It was a big hit for them and I believe your client could face the same. Best would be to contact HST and explain the situation before they contact him. Some times they are flexible on the first year of operation.

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They can try going to their customers and collect. Regardless, they will need to submit 13% tax on the sales over $30,000.

I spoke with a prospect who had somewhere between 5 and 7 years sales with no HST filed. And QuickBooks still tries to make it easy for all new entrepreneurs to go without help. Sad!

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As long as he did not exceed $30K in a single calendar quarter then he is likely fine. You have to determine in which calendar quarter of 2020 the revenue exceeded the $30K threshold. Then he is no longer a “small supplier” as of the end of the month following that quarter. For example if sales exceeded $30K in August he can remain a small supplier until Oct 31, 2020 and must register and start collecting tax Nov. 1, 2020

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My suggestion is to get the HST registration effective from the day when the client exceeded $30,000 threshold. You may like to send a request to CRA in writing, alongwith an explanation and copies of three copies of invoices and ask them to backdated registration. Volunteer registration may provide opportunity to claim from the customers and customers can claim ITC within four years for those HST payments.

If you cross threshold of four years, then HST may required to be paid, but your customers may not be able to claim ITC.

Regards

Akhlaq Khokhar, CPA, CGA
AKHLAQ KHOKHAR PROFESSIONAL CORPORATION

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Depends on when they crossed the $30K line? Did they show $30K in any one quarter? If so, they need to register for HST effective the day that they hit the $30K mark for that quarter.

Of if it was this month, then they need to register for HST effective the beginning of Nov (assuming a December y/e).

Or if it was any of the last three quarters, then they need to register for HST effective the first of the month following the $30K cumulative sales.

No need to back out the HST from any of the affected invoices, as the customers/clients should be issued revised invoices showing the HST registration number and the corresponding HST amount, less the amount paid towards the original invoice.

The customers/clients have 4 years to claim their ITC’s and can easily claim the additional HST on their HST Returns (either this year or this quarter or this month). It’s basically an “in and out” for them.

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If they are a retail business with thousands of sales making up the $45,000 re-invoicing won’t help. But back dating the HST registration to the appropriate date will look after penalties. If it is a construction type business with few, but larger sales, correction won’t be too difficult.

These days bookkeepers are advised to skip the compliance work, opting instead for advising. I maintain that compliance work is still needed. Whatever work we do, whether compliance or advising, we have to find a way to reach those beginning entrepreneurs who don’t think they need or can afford professional help.

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Actually if the $30k was exceeded this month (October) he ceases to be a small supplier Jan 31, 2021 and must register effective Feb 1, 2021

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The original link was pretty clear that if he exceeds the $30,000 by the end of October he is at that point in time no longer a small supplier and must register by the end of November, as soon as he is registered he collects. I am not commenting on the consequences of having exceeded the threshold by $15,000

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You exceed the $30,000 threshold over the previous 4 (or fewer) consecutive calendar quarters (but not in a single calendar quarter).

You are no longer a small supplier at the end of the month following the quarter in which you exceed $30,000.

Calendar quarter means a period of 3 months beginning on the first day of January, April, July, or October in each calendar year.

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Just a word to the wise:

When CRA speaks of a quarter, they mean any three month period; not just reporting periods. Also, let’s not forget there is the additional rule of $10,000 revenue in any given month that would require a small supplier to register for GST/HST.

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Are you saying your client hasn’t been charging HST to their customers? Then, as @obhorst says, they could try to collect from their customers, or as you noted, take it out of the amount they’ve already collected. If your client had been collecting HST (i.e. shown on customer invoices), they must remit it, but from what you have said, I don’t think this is the case.

There are several posts here about how to determine HOW MUCH your client must remit, so hopefully that helps. But, I want to mention one thing:

Once the HST account has been set up, you can request that CRA change the “start date” of the account to an earlier date (send them a letter). But, in most cases, that is not necessary. You can just include “prior” amounts on the first HST return. That is, just because the start date of the first return is, for example, Oct 20, 2020, doesn’t mean your client can ignore the HST they should have collected prior to that date.
(If they didn’t know they had to charge HST, they may not know how to properly report it, either.)

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@Hugo, I had a similar situation involving the Manitoba RST which has a $10,000 limit before RST needs to be collected. In this case, the client should have filed for an RST account 3 years earlier. We filed a voluntary disclosure letter to report the unreported RST that should have been assessed. All penalties and interest were waved, and the business paid over $3,600 out of pocket for the RST that was not collected during that period. We spoke to CRA and received approval to claim this as a business expense under GIFI # 8764 (Government Fees) since the money was never collected from clients. In this case, it was not feasible to re-invoice clients to collect the RST on those past invoices.

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Thank you everyone for your responses - I greatly appreciate it!

Have a great day.