Retroactive GST/HST Registration

Introduction

In 1991, Parliament introduced amendments to the Excise Tax Act, giving rise to the Goods and Services Tax (GST), a value-added tax primarily borne by the end consumer. Over time, provinces like Ontario harmonized their provincial sales taxes with the GST to create the Harmonized Sales Tax (HST). The HST administration was delegated to the Canada Revenue Agency (CRA), and its application rules were aligned with those of the GST.

This article refers to both GST and HST interchangeably, with the understanding that references to HST encompass GST in non-harmonized provinces. Regardless of jurisdiction, businesses engaged in commercial activities are generally required to hold a valid GST/HST registration to comply with Canadian tax regulations.

What is the Threshold for GST/HST Registration?

Any business engaged in commercial activities in Canada can voluntarily register for GST/HST. However, registration becomes mandatory once certain thresholds are met.

Small Supplier Exemption

Under the Excise Tax Act, businesses with taxable sales below $30,000 per annum (calculated over the last four quarters) are considered small suppliers. Small suppliers are exempt from mandatory GST/HST registration. While this exemption simplifies operations, it also prevents these businesses from claiming Input Tax Credits (ITCs) for the GST/HST paid on their inputs and materials.

Exceptions to Registration:

• Businesses in the medical profession or other exempt categories are not required to register.
• A detailed list of exemptions can be found in the Excise Tax Act and related CRA guidance.

For small businesses considering whether to register voluntarily, consulting with a tax professional can help determine the optimal strategy.

Consequences of Failing to Register for GST/HST

If a business engages in taxable commercial activities and exceeds the $30,000 threshold without registering, it is still deemed a "registrant" under the Excise Tax Act and is obligated to:

1. Collect and remit GST/HST on sales.
2. File GST returns as required by law.

However, failure to formally register with the CRA can lead to significant complications:

• Inability to Claim ITCs: Unregistered businesses cannot claim refunds for GST/HST paid on inputs, increasing operational costs.
• CRA Enforcement: The CRA may unilaterally open a business number, issue HST assessments, and apply penalties.
• Denial of ITCs: During audits, the CRA may deny all ITCs, forcing businesses to dispute the assessments or file retroactive returns.
• Severe Financial Penalties: Accumulated penalties and interest can jeopardize a business’s financial health.

It is essential to understand that filing a notice of objection does not halt CRA collection activities, which can escalate compliance challenges.

How to Register for GST/HST Retroactively

1. Voluntary Disclosure Program (VDP)

The Voluntary Disclosures Program allows businesses to rectify past non-compliance while minimizing penalties and interest. A taxpayer who successfully applies under the VDP can:

• Register for GST/HST retroactively to cover periods of non-compliance.
• Claim ITCs for up to 10 calendar years.
• Benefit from reduced penalties if the disclosure is complete and voluntary.

Key Considerations:

• The VDP is not available for businesses with outstanding tax debts or those under audit.
• Professional advice is essential to navigate the process effectively.

2. CRA Retroactive Registration

Businesses can also request retroactive registration directly with the CRA by providing:

• Proof of commercial activity (e.g., invoices, contracts).
• Financial documentation, including bank and credit card statements.
• Evidence that claimed ITCs align with the Input Tax Credit Regulations.

Limitations:

• ITCs are only refundable for expenses incurred within the last four years.
• Unclaimed ITCs beyond four years can offset HST liabilities but are not eligible for refunds.

Tax Tips for Retroactive GST/HST Registration

1. Act Promptly: Address registration gaps as soon as possible to minimize penalties and interest.
2. Maintain Documentation: Comprehensive records of sales, purchases, and tax payments are essential for retroactive registration.
3. Seek Professional Guidance: Retroactive registration can be complex, and tax professionals can help navigate the process while maximizing ITC claims.
4. Leverage the VDP: If eligible, the VDP offers a streamlined way to resolve non-compliance while avoiding severe penalties.
5. Monitor ITC Deadlines: Ensure ITCs are claimed within the allowable four-year period to avoid losing potential refunds.

Conclusion

GST/HST compliance is a critical responsibility for businesses operating in Canada. Retroactive registration offers an opportunity to correct past non-compliance, align with CRA requirements, and recover eligible ITCs. However, this process requires strategic planning, accurate documentation, and expert guidance.

Businesses facing retroactive GST/HST registration challenges are encouraged to consult experienced tax professionals to navigate the complexities, avoid penalties, and ensure compliance. Proactive steps today can protect your business's financial future.

This article is written for educational purposes.

Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.

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