- ABC Company files and pays the HST every year. Suddenly in year three they are given a notice of arears with penalty and interest. They look at their HST filings for year 1 and see that they owed 1500.00 and paid it by the deadline. In year 2 - they filed and paid 4,000.00. It was paid filed and paid on time, so they are stumped that they owe money to the CRA?
- WHAT HAPPENED
- What HST registrants may not be aware is that yearly filers only have an exemption of 3,000.00. Meaning that once you exceed the 3,000.00 interim payments are needed. Simply put they owed 4,000 so it should have been split in 4 instalments of 1,000.00 each quarter. The government wants any tax collected on accounts with HST remittances over 3,000.00 paid in the same tax year.. They want the tax paid in the quarter of the year that it occurred. HST is not required to notify you as the burden is on you.
- TO AVOID PAYING PENALITIES AND INTEREST on HST
If you think that your HST TAX due will be over $ 3,000 a year switch your filing frequency from yearly to quarterly. In order to do the instalments you need to know what you owe each quarter. So if your first quarter is Jan-Mar you have 30 days or until April 30 to file and pay or get a refund.
INCOME TAX both personal and business is the same. However the government will have to give you instalment notice. Although you can only file yearly you can track your income and adjust their instalments accordingly So if you owed 3,000 in personal income tax in year 1 but it jumps to 8,000 in year two you will need to make 4 x $2,000 QUARTERLY instalments in year three. They reconcile the instalments at year end. So for example if you file a tax OWING of $8000.00 they expect you would have made instalment payment on the 8,000.00. If however you only make 2,000 they expect no instalments would have been made. Those that short pay can expect penalties and interest.
MY TAKE AWAY
It is good practice to keep your books your to date . You should know monthly or quarterly what your financial position is. If you have debts such as tax owing you should know about it. You should know if you made or lost money. So under that umbrella these instalments might make you keep up your records up to date and not wait for the year end surprise