As a business owner, you have most likely registered for a GST/HST account and are required to remit a GST/HST return on a regular basis. In most cases, business owners will owe the government money. But there are some instances where businesses will receive a GST/HST refund.
In these situations, you may be audited if your return exceeds a specified dollar amount. If you’re audited, you’ll receive a letter from the CRA (Canada revenue Agency) requesting proof of your claim. This will include listings and invoices for the GST/HST you have paid and collected, as well as the reason why you ITCs exceed the GST/HST collected.
Why Would A Business Get A GST/HST Return?
There are two components to a GST/HST return. Your ITCs (input tax credits), which is the GST/HST you paid on expenses and the GST/HST you must remit to the CRA on sales.
Refunds happen when your ITCs exceed the amount of GST/HST you collected on your sales. This means the CRA now owes you money.
Some reasons business owners may be eligible for GST/HST returns are:
- Your sales are for zero-rated goods, such as groceries. Zero-rated goods should not be mistaken for exempted goods. The government does not collect tax on zero-rated items, but you can still claim ITCs on purchases made to make/sell them. Exempted items are not eligible for ITCs. In fact, if you only sell exempted supplies, you generally can’t register for a GST/HST account.
- Your sales are primarily made to first nations who are tax exempt.
- You pay HST on most expenses but sell to customers in Manitoba, British Columbia, Saskatchewan and Alberta, or the territories where there is GST instead of HST.
- You just started your business and had high start-up costs.
- Your business is seasonal so there are months where you incur overhead or make purchases for the following year but have no income.
- You primarily export your goods outside of Canada.
What Happens If Your Business Is Audited?
Audits are the number one reason you want to have your books and paperwork in order. That way, if your business is audited for any reason, you won’t have to panic. The CRA simply wants to see your receipts and have you explain why your GST/HST on sales did not exceed the ITCs. Once they see that everything is in order they’ll move on.
If you need help responding to the CRA for a GST/HST audit or want to get your books in order so you’re ready in case an audit happens, contact us today. You have other things to worry about when it comes to your business … less us deal with the financial stresses.
