Transcript

Host: Welcome to the segment called Calculating net tax using the Regular Method, part of the CRA’s GST/HST Information for a New Small Business video.

With me is Sarah Taylor.

Welcome Sarah.

Subject matter expert: Thank you Kathleen.

Host: How do you calculate net tax?

Subject matter expert: You have to calculate your net tax for each GST/HST reporting period, and report that net tax on your GST/HST return.

There are two ways of calculating net tax. There is the Regular Method, which is the default method for all registrants, and the Quick Method of Accounting, which can be used by most small businesses to reduce their paperwork and bookkeeping costs.

There is also the Simplified Method to claim input tax credits, which can be used by most small businesses, even if they don’t qualify to use the Quick Method.

This segment will focus on the Regular Method, and a separate segment will be devoted to the alternate methods.

Host: How do I calculate net tax using the Regular Method?

Subject matter expert: To calculate your net tax using the Regular Method, you first have to calculate: the GST/HST charged on your taxable supplies made during the reporting period; and the GST/HST paid and payable on your business purchases and expenses, for which you can claim an input tax credit or ITC.

The difference between the amount of tax charged and collected on your taxable supplies and the ITCs you claimed, including any adjustments, will be your net tax.

This calculation may result in either a GST/HST remittance or a GST/HST refund.

If you charged more GST/HST than the amount paid or payable, the difference is the amount you have to send to the Canada Revenue Agency.

If the GST/HST paid or payable is more than you charged, the difference will be refunded to you.

Host: What happens if I’ve charged the GST/HST, but I haven’t collected it yet?

Subject matter expert: You are liable for the GST/HST you charged on goods or services on the day you receive payment or the day the payment is due, whichever is earlier.

If you issue an invoice before you receive the payment, you have to include the GST/HST charged on this invoice in the reporting period that includes the date of the invoice, even if you’ve not yet collected the tax.

Host: What happens if I charge someone the GST/HST on an invoice, and they never pay me for it?

Subject matter expert: Amounts that a business decides it cannot collect are called bad debts.

You may have already included the GST/HST on a credit sale on your GST/HST return, sent any outstanding net tax, and took reasonable steps to collect the debt, but that sale became in whole or in part a bad debt. If this is your situation, you may be eligible to recover the GST/HST as a tax adjustment on your return.

For more information, go to the CRA webpage on bad debts. The link is included in the Related links for this segment.

Host: Is there a similar rule about claiming ITCs before an expense is paid?

Subject matter expert: Yes. When you calculate your ITCs, you can include the GST/HST for purchases and expenses for which you have been invoiced, but not yet paid. This means that you can claim an ITC for the GST/HST you owe to your suppliers before you pay the invoice.

Host: What happens if you don’t charge the GST/HST when you were supposed to?

Subject matter expert: If you are required to charge the GST/HST, but did not charge it, you are still liable for the tax.

You have to include the GST/HST that you should have charged in the reporting period during which you should have charged the tax.

Host: Let’s look at an example of calculating net tax with the Regular Method. If I collected $1,000 for the GST/HST from my clients, and I paid $800 of the GST/HST on business expenses, with no further adjustments on the return, what do I pay?

Subject matter expert: If you collected $1,000 in the GST/HST and had input tax credits of $800 of the GST/HST with no further adjustments on the return, your net tax would be $200.

Now that you have calculated your net tax as $200, you would have to pay this amount, and file the return showing the calculation by the due date.

Host: What’s a good resource for more information on the Regular Method?

Subject matter expert: More information is available in the Guide RC4022, General Information for GST/HST Registrants, which includes line by line instruction for completing your return. The link is included in the Related links for this segment.

Host: Thank you Sarah.

This concludes the segment called Calculating net tax using the Regular Method, part of the CRA’s GST/HST Information for a New Small Business video.

Thank you for watching.