It’s come to my attention that several of my clients have been affected by an issue with GST instalment payments. I wanted to take some time to thoroughly explain this issue and outline some steps that can be taken to avoid any further costs in the future.
First, it’s essential to understand that the Goods and Services Tax (GST) is a value-added tax applied to most goods and services sold in Canada. As a registered business, you are responsible for collecting and remitting the GST to the Canada Revenue Agency (CRA).
If your business has annual taxable supplies of $1.5 million or more, you are required to make GST filings every quarter. GST Instalment payments are based on your estimated net tax for the year and can be calculated using the GST/HST Return for Registrants (Form RC160) or the GST/HST Instalment Remittance Voucher (Form RC160I), which can be found on the CRA website. You can also use the GST/HST Netfile service to file your GST/HST return and make your instalment payment online.
It’s worth noting that the GST instalment payments are different from your regular GST/HST return. You will still need to file a return at the end of the year to reconcile any difference between your instalment payments and your actual net tax for the year.
Now, on to the issue at hand. Starting in the second year of your business, you are required to make quarterly instalment payments equal to 1/4 of the previous year’s GST payment if your first year’s total annual payment was $3,000 or more, or if you are confident of the current year’s earnings, you can make smaller instalments. However, if you are short on these payments (i.e. you don’t pay enough), the CRA will use the 1/4 payment from the first year as a base and assess interest on the difference between what you paid and 1/4 of the first year’s total payment due.
It’s important to note that if you are short on your GST instalment payments, you will only be assessed interest, not penalties. The interest rate is based on the prescribed interest rate, updated every quarter and currently at 8%. It’s worth noting that the interest compounds daily, so it’s important to try and pay as close to the due date as possible to minimize the amount of interest charged.
In terms of what you can do to avoid further costs, it’s important to decide how much you will pay for the upcoming fiscal year and make sure to make these payments on time through your bank using the GST-INS option (for instalments). It may also be a good idea to pay any outstanding balance while waiting for a dispute to be resolved (as there can be long delays).
It’s also worth noting that the Income Tax program has always had an instalment requirement. Our tax filing software automatically calculates this for you every year, and it’s part of the package submitted to you. Suppose you underpay on your Income Tax instalments. In that case, the short amount (i.e. the difference between the estimated amount and the actual amount paid) will be assessed interest at the prescribed rate.
I hope this information is helpful and clears up any confusion you may have had about GST instalment payments. If you have any further questions or need assistance with calculating or making your payment, please don’t hesitate to contact us.