December 17, 2019 by Rosa Maria Iuliano

Five tips for improved GST documentation

If your business is registered for GST, you can claim input tax credits under certain conditions. For one, you can recover any GST you pay on purchases and expenses that relate to your commercial activities. If a parent or sister company makes a payment on your behalf and it’s connected to your activity, you should be able to claim an input tax credit – as long as your name is on the transaction. If someone else’s name is on the transaction, the CRA has no way to confirm it’s yours (there’s also the danger that more than one entity could claim an input tax credit on the same transaction). With that in mind, here are five steps you can take to avoid improper GST documentation.

1. Get a separate bill

If a parent or sister company pays for a transaction on your behalf, they’re supposed to issue you a separate bill (they would claim GST for the original transaction and issue you a new bill in your name for the same amount). If you have made mistakes in the past and notice you have expenses in the wrong name, you should have the invoices reissued. In many cases, all you need to do is explain to the related business you claimed an input tax credit and request a new bill. For the company whose name was on the original invoice, the transaction will be a wash, but the other company will have the documentation they need to claim an input tax credit.

2. Get your name right

Businesses should be careful to make sure they avoid common errors with the documentation of transactions such as wrong or misspelled names. If your name or the name of your business is incorrect, you will need to request a new invoice with the correct name on it. Another common error is when the person who issues an invoice isn’t registered for GST. In this case, the input tax credit claim of the person paying the GST won’t be valid. This is something that always catches people by surprise. They might have paid GST, but if the person they paid isn’t a valid registrant, they can’t claim an input tax credit.

3. Consider the penalties

If you make a mistake in the process of claiming an input tax credit, this claim can be denied, causing you to lose that refund. In addition to a fine of up to 200 per cent for a false refund claim, you could be liable for any unwarranted refunds, as well as interest and penalties. However, if the transaction is a wash and the CRA concludes it’s not negligent, the penalty may be limited to four per cent. If this is your first mistake, they may even give you the benefit of the doubt. In general, the penalties are less severe if the mistake is unintentional, but the CRA could come back to do an audit three years later. If a number of errors have accumulated, you could face significant penalties. It’s also worth noting that all interest and penalties related to income tax or HST are non-deductible for tax purposes, which creates an even larger burden for the taxpayer.

4. Make a voluntary disclosure

If you recognize you’ve made a mistake before the CRA does and you make a voluntary disclosure, the penalty could be significantly reduced. Under this program, a voluntary disclosure could result in up to 100 per cent penalty relief and up to 100 per cent interest relief. In the case of a wash transaction, the voluntary program can reduce GST penalties and interest up to 100 per cent. In the case of non-compliance and other errors not necessarily subject to the wash, you would fall under the general program. In cases where the error was reasonable and unintentional, the relief is usually 100 per cent of the penalty and up to 50 per cent of the interest. Companies in the last category (the limited program) are larger and receive less relief. The CRA can defer criminal prosecution and choose not to apply a gross negligence penalty in these cases, but they will also deny any interest relief, as these entities are expected to be more knowledgeable and compliant.

5. Inspect paperwork carefully

People mistakenly believe GST documentation is not a major concern because the government has already collected their taxes. Since they’re not cheating the government, they don’t see how they could be in any danger. However, these provisions are not intended to penalize businesses for failing to pay taxes, they are intended to penalize them for getting the paperwork wrong. The best way to avoid making costly mistakes is to be diligent when inspecting paperwork. Otherwise, you will find yourself paying significant penalties for something as minor as an incorrect name on a piece of paper.

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Rosa Maria Iuliano Rosa Maria Iuliano
Ottawa, Ontario
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