HST REGISTRATION, COLLECTION, and REPORTING

Summary:

In Ontario a supplier of property or a service is required to charge HST on the transaction. In Ontario the rate is 13% which combines a federal rate of 5% and an Ontario rate of 8%.  

However a supplier is not required to charge HST if they are a “small supplier” and not registered for HST with the CRA.  A small supplier includes someone with revenue of $30,000 or less over the course of four consecutive quarters. A quarter is a three month period starting in January, April, July, and October.

‘Exempt supplies’ are not taxable and not included in calculation of the $30,000 threshold. Music lessons is an example of an exempt supply.

‘Zero-rated supplies’ are taxable but the rate is 0%. Zero-rated supplies are included in the calculation of the $30,000 threshold. A supply of services to a non-resident of Canada is an example of a zero-rated supply.

Persons required to collect HST must register for HST with the CRA and file a return each year.  A return reports the amount of HST collected and the amount of HST paid for business expense. HST paid on business expenses are called “input tax credits”. If the HST collected is greater than input tax credits, the difference is remitted to the CRA. If instead input tax credits are greater than the HST collected, the difference is issued as a refund.

When does a person have to collect HST?

An individual must collect HST on revenue that is paid or became due unless (1) the revenue was paid or became due at a time that the person was a small supplier, and (2) the person was not a “registrant” at the time, ie not registered or required to be registered for HST.

When is a person a small supplier?

There are two tests to consider:

(1)        A person is a small supplier throughout a quarter and for the first month following the quarter if the revenue that was paid or became due in the prior four consecutive quarters is not greater than $30,000. For example:

• Consider the quarter of Jan 1, 2027 to Mar 31, 2027. We look at the revenue in the previous four consecutive quarters which is Jan 1, 2026 to Dec 31, 2026. If revenue is not more than $30,000 over those previous four quarters then the individual was a small supplier from Jan 1, 2027 to Mar 31, 2027 plus one month, and therefore until the end of Apr 30, 2027.
• Now consider the next quarter of Apr 1 to June 30, 2027. We look at the revenue in the previous four consecutive quarters which is April 1, 2026 to March 31, 2027. If revenue is greater than $30,000 over those previous four quarters then the individual does not meet the criteria for being a small supplier in the quarter. However since status of small supplier had extended to the end of Apr 30, 2027, the individual ceases to be a small supplier starting May 1, 2027

(2)        A person ceases to be a small supplier starting immediately before a revenue amount is paid or became due if the amount will cause revenue to exceed $30,000 in a single quarter. For example:

• Consider the quarter of Jan 1, 2027 to Mar 31, 2027. Suppose an individual was owed $29,000 as of Feb 15, 2027, and then on Feb 16, 2027 a further amount became owing of $2,000. The invididual ceased to be small supplier immediately before the $2,000 became owing, and they will have to charge HST on the $2,000.

In the above examples, ‘revenue’ includes amounts paid or that became due for zero-rated supplies.  

By what date is a person required to be registered?

Unfortunately the Excise Tax Act makes things complicated by distinguishing between the date a person becomes required to be registered and the deadline for applying for registration.

A person is not required to register for or collect HST while they are a small supplier, provided they have not voluntarily registered. Once they cease to be a small supplier, they generally become required to register and collect HST by the date they make a taxable supply, even if they have not yet applied for registration.

Once a person ceases to be a small supplier, a person is required to apply for registration within 29 days of making a supply.

For example, suppose a person ceases to be a small supplier on May 1, 2027, and makes their first subsequent taxable supply on July 15, 2027. They are required to be registered by July 15, 2027 and must collect HST on that supply, but they have until 29 days later, August 13, 2027, to apply for registration.

If the person waits until August 13 to apply, they may not have an HST registration number when they issue their July 15 invoice. They can provide the number to the customer subsequently, including by issuing an amended invoice.

Exempt Supplies:

When determining if a person is a small supplier, revenue from the supply of exempt property and services is not counted as part of the $30,000 threshold. Regardless, HST is never charged on the supply of exempt property and services.

Exempt supplies includes:

• child care services if less than 24 hours per day
• tutoring someone in a course approved for credit or that follows a curriculum designated by a school authority
• music lessons.

Zero-rated Supplies:

The supply of some property and services has an HST rate of 0%, and are said to be “zero-rated”. When determining if a person is a small supplier, revenue from the supply of zero-rated property and services is not counted as part of the $30,000 threshold.  

For example, if within a period of four quarters a person supplied $2,000 of exempt supplies, $7,000 of zero-rated supplies, and $24,000 of other supplies, the total revenue for determining the obligation to register is $7,000 + $24,000 = $31,000. Since the amount is above $30,000 the person is not a small supplier.

Zero-rated supplies are listed in Schedule VI of the Excise Tax Act and include:

• basic groceries
• most prescription drugs
• medical devices
• exported goods
• intangible personal property supplied to non-residents who are not registered for GST/HST
• services or consulting services provided to a non-residents of Canada^[1]

In an HST return, input tax credits can be claimed for expenses relating to zero-rated supplies. Input tax credits can be claimed for expenses incurred during the period when the person was required to be registered, even if they had not yet applied for registration. (Although an HST cannot be filed until after registration).

What does “non-resident” mean?

The term is not expressly defined in the Excise Tax Act. In general, the residence status of individuals and corporations is determined according to common-law interpretation.^[2] However there are certain deeming rules, including these:^[3]

• a corporation incorporated in Canada is deemed to be resident in Canada.
• a foreign corporation with a permanent establishment in Canada is deemed to be resident in Canada but only in respect of the activities carried on in that establishment.
• a Canadian corporation with a permanent establishment outside Canada is deemed non-resident, but only in respect of activities carried on through that establishment.

How to register:

Registration can be done through a CRA account.^[4] Upon registering a person is issued a 9-digit business number (if they don’t already have one) and a GST/HST program number starting with RT.  The format of a full HST business number is: 123456789RT0001.

Once registered, the business account will be a choice that can be selected when logging into a CRA account.

Can a small supplier register?

A small supplier can register and it will enable them to recover the HST paid on business expenses. It can make sense for a person to register if (1) their customers are unlikely to be economically disaffected by the HST, and (2) the potential refund is enough to justify the extra administrative work, and (3) the person has the discipline to dutifully file a return every year, and they’re condifent they will do so.

For example, if a person has taxable billings of $20,000 and taxable expenses of $5,000 then $2,600 HST will be collected and $650 HST will be paid on expenses. The person will remit the difference of $1,950 to the CRA, and keep $650.  If the person’s customers are registered for HST they will be able to claim the HST they paid as input tax credits and therefore the customers will not be negatively impacted. Whether the $650 is worth the administrative burden is questionable.

Even if no expenses are incurred a person can get a refund using the Quick Method.

Completing a HST return using regular method:

A return can be completed online through a CRA business account. Steps:

• Log into CRA account
• Select business account, and then select GST/HST account (probably RT0001)
• Select File a Return and then follow the steps as instructed

If using the regular method:

• Line 101: enter total revenue excluding HST (include zero-rated revenue)
• Line 103: enter total HST collected (or were required to collect)
• Line 106: enter total HST paid on business expenses, both current and capital

Notes about Line 106 - Input tax credits:

• If some exempt goods or services were provided, for example music lessons, then the HST paid on expenses relates to those exempt supplies cannot be claimed. If certain expense relate to both exempt and non-exempt supplies, they will need to be allocated reasonably.
• All HST paid on expenses relating to zero-related supplies can be claimed.
• For capital expenses, all of the HST can be claimed regardless of the CCA rate. Even though you might only be able to deduct some of the expense in the year of purchase, you can nevertheless claim all of the HST in that year.
• For most capital expenses, if the item is used primarily for business (i.e. more than 50%) then the HST can be claimed. Otherwise the HST cannot be claimed.
• For a passenger vehicle the rule is different: If the car is used for business 90% or more then all the HST can be included (subject to the passenger-vehicle capital-cost limitation). If the car is used for business 10% or less then HST cannot be claimed. If between 10% and 90%, HST is clamed proprtional to the CCA for the vehicle.
• HST can be claimed for any expense not claimed in the prior four years. A person might do this if by mistake they failed to claim HST in a prior year.

What to do if HST was not charged to customer:

If HST should have been charged but was not, the person is required to account for the uncollected HST in their HST return.

For example, if an Ontario customer paid $100 as true consideration for a supply, and it was clear there was no intention that the amount was to include HST, then $100 is entered on Line 101 and $13 on Line 103.  

However if the person was unsure if tax had to be charged, and their intent was to charge an amount inclusive of tax if any, then it might be appropriate to enter $88.50 on Line 101 and $11.50 on Line 103.

The CRA generally treats an amount charged as exclusive of HST unless the circumstances support treating it as tax-inclusive. See CRA Policy Statement P-118R, Assessments on a Tax-Extra or Tax-Included Basis.

Completing an HST return using the Quick Method: 

Despite what its name might suggest, this method may not be not quicker to use than the regular method. The Quick Method tends to be financially beneficial if a business has relatively few expenses relative to revenue. That's because the HST to be remitted is calculated using a fixed percentage of revenue, without regard to the actual amount of HST paid on operating expenses

If an election was made to use the Quick Method, the calculation of the amount to remit to the CRA is as follows:

[Total sales includes HST] x 8.8% - [Input Tax Credits on capital items] - [1% x total sales up to $30,000]

Example 1: Suppose sales are $20,000 plus 13% HST which is $2,600, and there are no capital expenses. The remittance to the CRA is $22,600 x 8.8% - (22,600 x 1%) = $1,762.  

Example 2: Suppose sales are $50,000 plus 13% HST which is $6,500, and there are no capital expenses. The remittance to the CRA is $56,500 x 8.8% - (30,000 * 1%) =  $4,672.

As the examples show, when using the Quick Method you don’t have to know or calculate the actual HST paid on expenses.  In Example 1 above, if a person had no expenses and the regular method was used, they would have to remit $2,600 to the CRA, compared to the Quick Method amount of $1,762.

The Quick Method can only be used if an election to use it was made in advance. The election is made online in a CRA business account. The election has to be made no later than April 1st of the tax year. For example if a person wants to use the Quick Method for the 2026 tax year, they must make an election to use it by April 1st, 2026. In the next or some future year, an election can be made to switch back to the regular method.

The ‘total sales’ in the formula given above should only inlcude non-zero-rated sales. For example, if a person had billings of $10,000 for which they charged HST of $1,300, and a further $5,000 of billings which were zero-rated and for which HST was not charged, then the remittance amount is $11,300 x 8.8% - (1% x $11,300) = $881

The HST return is completed as follows:

• Line 101: Enter total revenue including HST (but excluding zero-rated revenue)
• Line 103: Enter 8.8% x Line 101
• Line 106: Enter HST paid on capital expense items such as computers and vehicles
• Line 107: Enter 1% x (Line 101 or $30,000, whichever is less)

The above entries will be used to automatically calculate boxes 105, 108, 109, and 114 or 115.

Choice of Method changes how T2125 is completed:

When the usual method is used, all expenses entered in T2125 should not include HST.

If the Quick Method is used, then the following applies when completing the T2125:^[5]

• Boxes 3A, 3B and 3C are completed the same for both methods
• Box 3D: Enter HST paid (same as Line 3B)
• Box 3E: Enter 8.8% x (total revenue including HST, but excluding zero-rated revenue). This will be the same number as appears on Line 103 of the HST return.
• For Other Income (Line 8230), enter the amount from Line 107 of HST return.
• Current expenses: include HST
• Capital expenses: don’t include HST

This is illustrated with a couple examples:

Example 1:

• revenue was $20,000 plus $2,600 HST, and none of the supplies was zero-rated
• current expenses, for example advertising expenses, were $1,000 plus $130 HST
• no capital expenses

Regular Method:

The HST return would show a remittance required of $2,470:

The T2125 would show net business income of $19,000:

Quick Method:

The HST return would show a remittance required of $1,762:

The T2125 would show net business income of $19,481:^[6]

Comparison of regular and quick methods:

In this example, by using the Regular Method, the HST remittance is $702 less. However, note that income is $537 higher, potentially resulting in slightly higher tax, and higher CPP contributions, although possibly offset by a higher Canada Workers Benefit. Overall in this example, using the Quick Method is financially beneficial.

Example 2:

In this example there are zero-rated supplies and capital expenses:

• Revenue from regular sales: $10,000 plus $1,300 HST
• Revenue from zero-rated sales: $5,000, no HST
• Current expense: advertising related to zero-related sales, $1,000 plus $130 HST
• Current expense: office expenses relating to all sales: $1,000 plus $130 HST
• Capital expenses: computer, $2,000 plus $260 HST, used for all sales

Regular Method:

The HST return would show a remittance required of $780:

The T2125 would show net business income of $11,000:

Quick Method:

The HST return would show a remittance required of $621.40:

The T2125 would show net business income of $11,158.60:

Calculating portion of amount that is HST:

If an income or expense total includes HST and it is necessary to breakout the portion that is HST, it is easy to calculate:

HST portion = amount x 13 / 113.

For example if an amount is $100 including HST, the HST amount is $100 x 13 / 113 =  $11.50. The amount prior to adding HST is $100 - $11.50 = $88.50.

Due dates for payment and filing of return:

HST must be paid by April 30th to avoid interest. The HST return must be filed by June 15th to avoid a late filing penalty.

The late filing penalty is 1% of the amaount owing plus an additional 0.25% for each complete month for a maximum of 12 months. By this calculation, the maximum penalty is 4% of the amount owing.

Interest starts on April 30th at a prescribed rate, set quarterly. It is compounded daily.

A return must be filed even if no business was conduted or no HST collected. However there is no penalty for late filing provided a demand to file was not issued.

If the CRA issues a demand to file, failure to file can result in a $250 penalty.

Late filing can affect personal income tax:

If a person is entitled to a tax refund on their T1 tax return, but they haven’t yet filed their HST return, the CRA may withhold the refund until the HST return is filed.

Duty to inform customers that HST is being charging:

A supplier must indicate in a receipt, invoice, or written agreeement, the HST as a separate amount, or that the price includes HST. For example a receipt can say $100 + $13 HST, or it can say $113 including HST.^[7] 

Expense Records:

To claim an Input tax credit for an expense, a person should have supporting documents containing prescribed information.^[8]  The requirement is mandatory and can be strictly enforced.^[9] However, the CRA does have the discretion to waive strict requirements.^[10] The supporting documentation can be something other than an invoice and doesn’t have to be contained in a single document.^[11]

A regulation under the Excise Tax Act sets out the required information:^[12]

No matter what the expense amount, the supporting documents must show:

• the supplier’s business name
• invoice date, or if there is no invoice the date when the HST was paid/payable
• total amount paid/payable

If the expense amount is over $100 the documents must also show:

• the amount of HST charged or a statement that the amount includes HST
• the supplier’s HST registration number

If the expense amount is over $500 then further prescribed information is required, including:

• the self-employed person’s name (or their business name if they’ve registered one)
• a description of each good or service sufficient to identify it

Digital Economy Workers and HST:

Some people sell physical or digital items through an internet platform where the platform brings together the supplier and customer. Examples are Etsy, eBay, and Kijiji. If the person is registered for HST they may be required to include HST in their price, collect it, and remit it to the CRA. If the seller is a small supplier and not registered, the platform itself might be required to charge HST and remit it to the CRA.^[13]

Retroactive HST registration:

If a person hasn’t registered for HST and failed to collect HST by the date they should have, they can consider undertaking these steps:

• Determine when collection of HST was first required.
• For each applicable year, calculate the HST that should have been collected and the input credits, and determine the net HST amount, if any, that ought to have been remitted.
• Once those calculations are done, estimate the potential interest and penalties.
• If the interest and penalties are significant, consider filing a Voluntary Disclosures Program application.
• If the interest and penalties are not signficant and a VDP application is not pursued, then proceed to register for HST and send a written request to backdate the date of registration. Then file the oustanding HST returns, pay net HST, and be prepared to recieve a request to pay interest and penalties.
• If filing a VDP application makes sense then complete the application, attach the oustanding HST returns to the application, and submit. At the same time, register for HST and send a written request to the CRA requesting that the date of registration be backdated. Attach a copy of this written request to the VDP application.

Zero-rated supplies may trigger a review letter:

If a person had zero-rated sales then the HST they collect will not equal the HST rate multiplied by gross sales. For the HST return, the gross sales reported on Line 101 multiplied by 13% will not match the HST reported on Lines 103 and 105. Note that the HST return does not identify if any of the sales are zero-rated. This situation may give rise to a review letter asking if any sales are zero-rated, and if so, a description of them. Here is an excerpt from an example review letter:

References:

• RC4022 General Information for GST/HST Registrants
• RC4058 Quick Method of Accounting for GST/HST
• Guide T4002, Self Employed Business, Professional, Commission, Farming and Fishing Income
• Excise Tax Act
• GST/HST Memoranda Series
• Working copy of HST return
• CRA webpage - online registration for business number and GST/HST program account
• CRA webpage - Input tax credits.
• CRA instructions for requesting that HST registration be backdated.
• CRA Memorandum 16-5-1 Voluntary Disclosures Program for HST
• Excise Tax Act Provisions of note:

• s.221(1) requires every person who makes a taxable supply to collect the HST that is payable.
• s.166 says that ‘tax payable’ is not calculated on an amount supplied by someone who is a small supplier and not a registrant.
• s.148(1) and (2) establishes two different tests for whether a person is a small supplier.
• s.123(1) defines “registrant” as a person who is registered or who is required to be registered.
• s.240(1) provides that a person making taxable supplies in Canada in the course of a commercial activity is required to be registered, subject to exceptions, including the small-supplier exception in paragraph 240(1)(a).
• s.169(1) provides that an ITC may arise where HST becomes payable, or is paid before becoming payable, during a reporting period in which the person is a registrant.
• s.240(2.1)(b) provides thatthe person has until the 29th day after making their first taxable supply otherwise than as a small supplier to apply for registration.  
• Excise Tax Act Regulation 91-45 - Input Tax Credits prescribed information