Annual GST/HST Filers Must Beware of Large Payment at Year-End

Although we have transitioned from a 5% Goods & Services Tax (GST) to a 13% Harmonized Sales Tax (HST), the process of instalment payments has not changed. However, the consequences of not paying correct instalments or paying instalments late have substantially increased.

While the threshold to begin owing instalments for GST/HST remains at $3,000, many GST/HST registrants who were not paying instalments in the past may find themselves at the $3,000 threshold with HST and need to begin making instalment payments.

In order to avoid interest charges on GST/HST instalments, one must pay instalments at least in the amount of the prior year GST/HST owing. For example, if you (your company) owed $4,000 in GST last year, and you pay $1,000 in instalments for each quarter this year, then you will not be charged interest for under-paying your instalments. Instalment payments are due within one month after each quarter.

However, by only paying instalments equal to your prior year GST owing, then at the year-end you will owe a lump-sum payment of HST that will represent the additional 8% (from 5% to 13%) of HST you have collected during the year. Therefore the $4,000 in GST you may have paid in a prior year, may balloon to $10,400 of HST in the current year.

Companies who do not plan ahead to leave enough cash on hand to pay the HST collectible to the CRA at this time will find themselves in a difficult situation. It is extremely important to ensure you can make this payment as CRA will begin to charge you interest compounded daily for the outstanding amount. Interest will be charged on overdue balances and/or late or insufficient payment.

Companies may want to set up a separate savings account to collect the GST/HST collectible in order to ensure that the cash is available at year-end. Alternatively, you may choose to increase your instalments throughout the year (current instalment x 2.6 to account for the 8% tax increase) in order to prevent a single large payment from paying only the minimal required instalments.