# If I pay the HST for my clients, is this a claimable business expense?



## tsnbmm (Mar 27, 2018)

I've paid about $10 000 worth per year and this significantly reduced my profits in my struggling business. I have made very modest profit, if any, yet without this deduction, it seems I owe a fair bit of income tax.

Thanks for your expertise.


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## OptsyEagle (Nov 29, 2009)

I doubt you paid it because of your overall kind nature and wish to help others. I highly suspect you paid it so that your customers appreciated it so much they continue to use your goods or services and maybe even refer others to your business.

That sounds like a fully deductible business expense to me. Just find a line on your expense that sounds like it applies. Fees would work if there isn't another better.


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## tsnbmm (Mar 27, 2018)

Okay and thanks for your perspective OptsyEagle. Much appreciated. That does sound right to me too. If anyone else has an opinion, I'm all ears for more. Thanks





OptsyEagle said:


> I doubt you paid it because of your overall kind nature and wish to help others. I highly suspect you paid it so that your customers appreciated it so much they continue to use your goods or services and maybe even refer others to your business.
> 
> That sounds like a fully deductible business expense to me. Just find a line on your expense that sounds like it applies. Fees would work if there isn't another better.


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## twa2w (Mar 5, 2016)

No I don't believe you can claim GST paid on behalf of clients. Or at least not directly. Your accounting just has to be adjusted.

Lets say you are selling a service for 15.00. You tell your client you will cover the GST. 
What you are actual doing is selling the service for 14.29 and charging 0.71 GST.
So your sales are 14.29 * number of units.
Not 15.00 * number of units

You would account for GST collected versus credits on your GST return and pay the appropriate portion of GST to the feds.
Then complete your tax return.
Etc etc. I am not an accountant, but an accountant explained it to me. Hopefully I understood him correctly.

I see you are HST but same idea.


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## Just a Guy (Mar 27, 2012)

If you pay $10,000 in HST each year, what are your actual sales? They should be higher, thus you should have your own HST number and file a claim each year.


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## tsnbmm (Mar 27, 2018)

My sales range from 50 000 to 70 000 but as mentioned in a reply above, it is commission revenue. Indeed I have an HST account but I didn't collect HST. Now, I have to pay it myself. Since I have been paying it, by making monthly payments in a payment arrangement, I'm wondering if I can count this against revenue. I actually filed HST relatively on time (as CRA asked for it) but am now filing income tax for the last three years and am hoping this HST can be an expense because it's significant and it significantly cut into my earnings. 

Thanks for your input. 



Just a Guy said:


> If you pay $10,000 in HST each year, what are your actual sales? They should be higher, thus you should have your own HST number and file a claim each year.


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## tsnbmm (Mar 27, 2018)

Interesting, twa2w.

I posed my initial question for this post in the most basic way but, to be more detailed, here is how the billing works for my business. I own a food courier. Restaurants pay couriers a delivery fee; often in cash. These couriers then pay me a 30 percent cut of this delivery fee. This is my sole income. If the delivery fee is $6, the courier owes me $1.80. 

Out of this $1.80, which is a commission revenue, I earn about $60 000 in revenue. I should charge the courier HST on the $1.80 but I don't. (Because it's hard enough to hire good couriers and well I just never implemented the change when I passed the $30 000 revenue and signed up for HST) 

So, it's a fair chunk of HST to pay. Not the wisest financial move but times were tough and I needed my couriers to be happy and stick with me more than anything. So, I have to pay it. But, it just doesn't seem to make sense to me that this wouldn't be an expense or somehow reduce my revenue. And as some people are saying, there may be something i can do.

Anyways, could I , in hindsight, say that I was actually charging my couriers less commission than I was and make it as if part of it was HST? (as you're saying). This would lower my revenue, yes. I just wonder if that is questionable to do, in a backtracking way, as that, simply, wasn't what the numbers were. 

Wouldn't it be possible, as an example, that a store that says "we pay the tax" on an item that is $100, actually pays $13 HST but then makes that $13 an expense? ... Like a discount... perhaps that's just what you mean. Hmm.


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## Joe Black (Aug 3, 2015)

OptsyEagle said:


> I doubt you paid it because of your overall kind nature and wish to help others. I highly suspect you paid it so that your customers appreciated it so much they continue to use your goods or services and maybe even refer others to your business.
> 
> That sounds like a fully deductible business expense to me. Just find a line on your expense that sounds like it applies. Fees would work if there isn't another better.


Err, I highly doubt that the CRA would agree with this point of view. Let's use some simple numbers as an example. Say your sales were $10,000, so you should have charged $1,300 HST. And let's say your profit was $5,000. So the CRA is expecting $1,300 remitted for HST, and some percentage of your $5,000 as income taxes. But instead, you "expense" the $1,300 HST, dropping your income to $3,700 and consequently lowering your taxes. Do you really think the CRA will agree with getting less overall taxes?

The HST is completely separate from your business. Your profit/loss is the difference between what you sell and your expenses. HST is a "toll" against the business transaction meant to be charged against your customer, it really only involves the customer and the CRA, you are just the middleman who is collecting on behalf of the CRA. It's no different then if the HST were charged directly from CRA to the customer (e.g. I buy something at the store for $100, and the government sends me a tax bill of $13 - that $13 has nothing to do with the store).

As for this theory of a discount being an expense, if that were possible than I could start selling cans of pop where my "price" was $100/can but I would "discount" them by 98%, and presto-magico I now have $98 "expense" for each can I sell. Discounts aren't expenses, its just what you call it when you lower your price.


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## RussT (Jul 11, 2016)

I agree with twa2w. 

You sold your service with HST included. You have effectively reduced your revenue. You can't claim an expense but you can back the HST out of revenue and report reduced revenue.


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## OptsyEagle (Nov 29, 2009)

Joe Black said:


> Err, I highly doubt that the CRA would agree with this point of view. Let's use some simple numbers as an example. Say your sales were $10,000, so you should have charged $1,300 HST. And let's say your profit was $5,000. So the CRA is expecting $1,300 remitted for HST, and some percentage of your $5,000 as income taxes. But instead, you "expense" the $1,300 HST, dropping your income to $3,700 and consequently lowering your taxes. Do you really think the CRA will agree with getting less overall taxes?




Joe. CRA deals with less taxes everyday. They have no problem with it as long as it is legitimate. My point you quoted is exactly what CRA looks at. Did the expense go towards this persons ability to make a profit. Yes it did, therefore it is a legitimate business expense.

All I was saying is that the HST will go towards reducing his profit. Whether he accounts for it as an expense or a reduction of revenue, I was not saying one way or the other, I was just saying that he did not need to bite into all of it alone. CRA is his partner and they will pay their share.

From the sounds of it, the more accurate accounting would be to simply reduce his revenue by the HST because that is exactly what happened. Now it sounds to me that perhaps he received the revenue in one tax year and is now paying the HST in another tax year. That certainly complicates things, if I am correct. As I said, the most accurate accounting would be to reduce his revenue by the HST because his revenue was reduced by the HST.

If we are talking about different tax years, I cannot advise whether he should simply record the HST as an expense in the year he paid it or amend the previous tax returns to adjust for the reduced revenue. I would think the latter but that is just a guess.


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## Spudd (Oct 11, 2011)

OptsyEagle said:


> Joe. CRA deals with less taxes everyday. They have no problem with it as long as it is legitimate. My point you quoted is exactly what CRA looks at. Did the expense go towards this persons ability to make a profit. Yes it did, therefore it is a legitimate business expense.
> 
> All I was saying is that the HST will go towards reducing his profit. Whether he accounts for it as an expense or a reduction of revenue, I was not saying one way or the other, I was just saying that he did not need to bite into all of it alone. CRA is his partner and they will pay their share.
> 
> ...


I charge HST on my business and when I report the revenue on my tax return I don't include the HST as part of it. So let's say I made 10k + HST, I keep 10k in my pocket and pay the government their $1300 HST. On my tax return I say that I made 10k. I don't say I made 11.3k because the HST was just passed through to the government. Now, it happens that I also pay the HST in the following calendar year (because my fiscal year is Jan 1 - Dec 31 and HST is due to be paid by March 31). But that doesn't matter. The HST is not revenue and should not be recorded as such.

So in this case, I agree with twa2w (not surprising, he seems to be very smart), that OP needs to calculate how much actual revenue he made and only claim that on his tax return. The HST would not be a business expense, but it is not revenue either.


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## Just a Guy (Mar 27, 2012)

It would be an HST claim though...sounds like he may get an HST audit if he doesn't correct it soon. Pleading "I didn't think I was charging HST" doesn't cut it with the government. Ironically, if he were audited, it would probably amount to very little difference, other than transferring money to the correct accounts (HST instead of income tax), but it'll probably be a big mess and hassle. 

I gather the OP didn't bother with an accountant.


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## Spudd (Oct 11, 2011)

Just a Guy said:


> It would be an HST claim though...sounds like he may get an HST audit if he doesn't correct it soon. Pleading "I didn't think I was charging HST" doesn't cut it with the government. Ironically, if he were audited, it would probably amount to very little difference, other than transferring money to the correct accounts (HST instead of income tax), but it'll probably be a big mess and hassle.
> 
> I gather the OP didn't bother with an accountant.


OP says in post 6 that he is paying the govt the HST they are owed, he is just not charging it to his clients.


> Indeed I have an HST account but I didn't collect HST. Now, I have to pay it myself. Since I have been paying it, by making monthly payments in a payment arrangement, I'm wondering if I can count this against revenue. I actually filed HST relatively on time (as CRA asked for it)


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## Numbersman61 (Jan 26, 2015)

Based on the information provided, the OP has $60,000 gross income which is all service revenue. As such, he qualifies for The Quick Method of Accounting for GST/HST. This results in a reduced % payment to the government. Here is the link to the CRA bulletin https://www.canada.ca/en/revenue-ag...uick-method-accounting-gst-hst.html#P100_5211
If your business is in a province that has a 12% HST rate, your remittance rate is 8.2% of your service revenue. Note you must file the election to qualify and when you do, you receive addional 1% credit for the first $30,000 of service revenue provided the election was filed before the start of the fiscal year.
With regards to reporting the sales on the income statement, I believe generally accepted accounting principles require that the sales revenue be reduced by the notional HST collected.


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## Just a Guy (Mar 27, 2012)

Spudd said:


> OP says in post 6 that he is paying the govt the HST they are owed, he is just not charging it to his clients.


Just because he doesn't think he's charging HST to his clients, doesn't mean CRA will agree with him. If I have a "no HST" sale, the government still expects me to collect the HST on my sales, I'm just giving a 12% discount on the sale, I still need to pay the government it's 12% on the reduced price.

In reality, he is charging his clients HST, he's just not claiming it properly.


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## tsnbmm (Mar 27, 2018)

A lot of smart people on here. Thanks a lot, folks. 

My situation is that I've filed HST 2011 to 2016 (and am making payments on a payment arrangement) and am just now being asked to file income tax for 2014-2016 (haven't filed since 2013. yes, it's been a mess of a few years in multiple ways, including book keeping)

I'm not going to worry about having over-calculated my revenue (by not making the HST calculated "inside" it) when I filed HST for 2013 and before but the conclusion I'm coming to, i think, is that I will adjust my HST filings for 2014 to 2016 to change my total revenue. Where eg. if, in 2014, i had filed HST from revenue of $60,000 and I incurred a $7800 HST amount (to pay myself), I will change revenue to $53,097.35 (a $6902.66 HST amount) (which totals to $60,000). And on my 2014 income tax I'm doing now, I'll make my revenue/ my sales as $53,097.35. 

Does this sound legit? Should I see an accountant to be sure? My priorities are to not take risks of getting myself in trouble. Reducing my amount owed is secondary but I certainly don't want to (or have the resources to) overpay grossly like I may be doing. 

Alternatively, could I leave revenue as $60,000 and somehow consider that I've made a $7800 pay out (expense) to my contractor couriers to pay them/ compensate them for the HST they need (needed) to pay!? Then, make this pay out a business expense on my income tax. Perhaps I'm getting repetitive. Just wondering if there's a reasonable way, or good reason, to leave the number as $60,000. 

Thanks again!


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## tsnbmm (Mar 27, 2018)

This is very interesting too. But I wouldn't be able to elect to do this moving backwards right? Only for perhaps 2018 and beyond?




Numbersman61 said:


> Based on the information provided, the OP has $60,000 gross income which is all service revenue. As such, he qualifies for The Quick Method of Accounting for GST/HST. This results in a reduced % payment to the government. Here is the link to the CRA bulletin https://www.canada.ca/en/revenue-ag...uick-method-accounting-gst-hst.html#P100_5211
> If your business is in a province that has a 12% HST rate, your remittance rate is 8.2% of your service revenue. Note you must file the election to qualify and when you do, you receive addional 1% credit for the first $30,000 of service revenue provided the election was filed before the start of the fiscal year.
> With regards to reporting the sales on the income statement, I believe generally accepted accounting principles require that the sales revenue be reduced by the notional HST collected.


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## Spudd (Oct 11, 2011)

nbtsmm said:


> This is very interesting too. But I wouldn't be able to elect to do this moving backwards right? Only for perhaps 2018 and beyond?


Yes, only moving forwards. If you make the election today I think it will be valid for 2018, just put the start date as Jan 1 2018. 

As to your previous post, it's a little funky if you overpaid the HST. But if you have the documents to back up that you only took in 60k, then it's absolutely fair to say that $6902 of that was HST you passed through to the govt and the rest was your revenue. Just make sure you have good clear documentation. Since your mistake has caused you to overpay tax (you paid 7800 instead of 6902) I don't think the govt will complain, but they might ask questions, so make sure your paperwork is all clear and good.

It seems like you can modify your HST returns as well:
https://www.canada.ca/en/revenue-ag...-gst-hst-return/correct-a-gst-hst-return.html

But maybe a fish to fry after you've sorted out your income tax. You might want to enlist an accountant - it may actually save you money as this is pretty complex.


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## Joe Black (Aug 3, 2015)

Spudd said:


> I charge HST on my business and when I report the revenue on my tax return I don't include the HST as part of it. So let's say I made 10k + HST, I keep 10k in my pocket and pay the government their $1300 HST. On my tax return I say that I made 10k. I don't say I made 11.3k because the HST was just passed through to the government. Now, it happens that I also pay the HST in the following calendar year (because my fiscal year is Jan 1 - Dec 31 and HST is due to be paid by March 31). But that doesn't matter. The HST is not revenue and should not be recorded as such.
> 
> So in this case, I agree with twa2w (not surprising, he seems to be very smart), that OP needs to calculate how much actual revenue he made and only claim that on his tax return. The HST would not be a business expense, but it is not revenue either.


I know it's not revenue, that's my point exactly. The HST you collect does not have any affect on the revenue, net income or expenses of your business. When your customer buys something from you, there's a price which he pays and that is your revenue, and then there's the HST on top of that which is the CRA's revenue. Now, the CRA doesn't really care where the money actually came from, so you are perfectly able to pay the HST he owed. But that's really a donation to your customer, not an expense. Just the same as if I paid my neighbour's income tax, I can't use that as a deduction for my own.

But hey, why doesn't the OP just phone CRA and ask "if I paid my customer's HST, can I make that an expense"? If everyone thinks it's a legitimate expense, nobody should object to making that call.

One thing I am wondering - doesn't the OP have any input tax credits to offset what he was supposed to collect.


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## OptsyEagle (Nov 29, 2009)

nbtsmm said:


> A lot of smart people on here. Thanks a lot, folks.
> 
> My situation is that I've filed HST 2011 to 2016 (and am making payments on a payment arrangement) and am just now being asked to file income tax for 2014-2016 (haven't filed since 2013. yes, it's been a mess of a few years in multiple ways, including book keeping)
> 
> ...


I would AMMEND everything. If you overpaid your HST then amend it, if you can. If you paid HST for revenue in 2011, 2012 and 2013 and therefore overstated your revenue and hence overpaid your taxes owing on your tax returns, I would amend those returns as well. It is quite easy, and done on a T1-Adjustment form. In your case you would be adjusting your revenue down accordingly. Not only is this the correct method of dealing with this mess, but it will also garner you some income tax refunds, assuming you paid tax in those years. You know how to deal with your income tax returns going forward, so good luck to you on that.


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## OhGreatGuru (May 24, 2009)

I think the subject has been beaten to death, and others have pointed out that OP needs to change his accounting methods. But the essential misunderstanding is that OP cannot "pay the customers' HST" as a business expense. OP is the government's tax-collector for HST. That HST has to be delivered to CRA whether or not the business is profitable. By "eating" the HST, OP has sold his services at a discount, and his accounting methods have to reflect this.


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## tsnbmm (Mar 27, 2018)

I'll ask them. Good idea. 

Not much for input tax credits. Several phones and the associated hst on those bills. Rental fees on POS machines. A few things but nothing to cut much into the HST owed. 





Joe Black said:


> I know it's not revenue, that's my point exactly. The HST you collect does not have any affect on the revenue, net income or expenses of your business. When your customer buys something from you, there's a price which he pays and that is your revenue, and then there's the HST on top of that which is the CRA's revenue. Now, the CRA doesn't really care where the money actually came from, so you are perfectly able to pay the HST he owed. But that's really a donation to your customer, not an expense. Just the same as if I paid my neighbour's income tax, I can't use that as a deduction for my own.
> 
> But hey, why doesn't the OP just phone CRA and ask "if I paid my customer's HST, can I make that an expense"? If everyone thinks it's a legitimate expense, nobody should object to making that call.
> 
> One thing I am wondering - doesn't the OP have any input tax credits to offset what he was supposed to collect.


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## tsnbmm (Mar 27, 2018)

Thanks for the info. 

It wouldn't necessarily raise a red flag quickly if my revenue was lower on my income tax than my HST filing if I don't adjust the past HST filings for a while?


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## tsnbmm (Mar 27, 2018)

So it isn't necessarily incorrect to adjust my revenue to include the HST among the total revenue even if my arrangement with my couriers didn't specify HST at all? ... in that, i charge them a 30 percent commission, not a 26 ish percent (plus HST) commission.


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## tsnbmm (Mar 27, 2018)

So it isn't necessarily incorrect to adjust my revenue to include the HST among the total revenue even if my arrangement with my couriers didn't specify HST at all? ... in that, i charge them a 30 percent commission, not a 26 ish percent (plus HST) commission.



OptsyEagle said:


> I would AMMEND everything. If you overpaid your HST then amend it, if you can. If you paid HST for revenue in 2011, 2012 and 2013 and therefore overstated your revenue and hence overpaid your taxes owing on your tax returns, I would amend those returns as well. It is quite easy, and done on a T1-Adjustment form. In your case you would be adjusting your revenue down accordingly. Not only is this the correct method of dealing with this mess, but it will also garner you some income tax refunds, assuming you paid tax in those years. You know how to deal with your income tax returns going forward, so good luck to you on that.


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## Just a Guy (Mar 27, 2012)

You've been misclaiming for years because you didn't hire an accountant. I think it would be wise to finally hire one, go back and adjust your claims retroactively and get it sorted out before you get hit with a random, or routine audit. Every business I know has been audited by CRA at least once, you don't want them discovering the error.


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## tsnbmm (Mar 27, 2018)

Thanks for the info. 

Would it necessarily raise a red flag if my revenue was lower on my income tax than my HST filing? ...which it would if if I don't adjust the past HST filings for a while. Any particular way of going about this that is more or less likely to trigger an audit? I have always claimed my income and expenses accurately (even on tips when I used to drive for myself) but my record keeping is not the best (clearly) and I know you can get in trouble for poor record keeping. Because of that, as well as it being a bummer if my audit led to my couriers being audited, I'm trying to consider going about this in a way that lowers the chance of an audit... if there's even anything to be done. 




Spudd said:


> Yes, only moving forwards. If you make the election today I think it will be valid for 2018, just put the start date as Jan 1 2018.
> 
> As to your previous post, it's a little funky if you overpaid the HST. But if you have the documents to back up that you only took in 60k, then it's absolutely fair to say that $6902 of that was HST you passed through to the govt and the rest was your revenue. Just make sure you have good clear documentation. Since your mistake has caused you to overpay tax (you paid 7800 instead of 6902) I don't think the govt will complain, but they might ask questions, so make sure your paperwork is all clear and good.
> 
> ...


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## tsnbmm (Mar 27, 2018)

Indeed, though I've been claiming my full revenue and paying HST on top of that (paying it, myself). The adjustments would actually be lowering the revenue. As it is now, if audited now, I'd be found to have paid too much. Is this an error the CRA would be concerned with? 



Just a Guy said:


> You've been misclaiming for years because you didn't hire an accountant. I think it would be wise to finally hire one, go back and adjust your claims retroactively and get it sorted out before you get hit with a random, or routine audit. Every business I know has been audited by CRA at least once, you don't want them discovering the error.


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## tsnbmm (Mar 27, 2018)

You're right about the accountant. I saw one a few years ago. And i filed my income tax through an HR block type business for every year. None suggested, nor did I consider it either, to do anything else other than pay the HST on my full revenue (instead of include it in the revenue).


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## tsnbmm (Mar 27, 2018)

You're right about the accountant. I saw one a few years ago. And i filed my income tax through an HR block type business for every year. None suggested, nor did I consider it either, to do anything else other than pay the HST on my full revenue (instead of include it in the revenue).



Just a Guy said:


> You've been misclaiming for years because you didn't hire an accountant. I think it would be wise to finally hire one, go back and adjust your claims retroactively and get it sorted out before you get hit with a random, or routine audit. Every business I know has been audited by CRA at least once, you don't want them discovering the error.


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## Just a Guy (Mar 27, 2012)

nbtsmm said:


> Indeed, though I've been claiming my full revenue and paying HST on top of that (paying it, myself). The adjustments would actually be lowering the revenue. As it is now, if audited now, I'd be found to have paid too much. Is this an error the CRA would be concerned with?


While you overpaid one tax department, you possibly underpaid another. The one you overpaid won't care, the one you underpaid won't be happy and it you with fees. It's not all one happy money pot, each has their own hoard and they are very concerned with protecting it. 

I once shut down a company, filed all the proper paperwork with CRA and, I thought, HST. Turns out HST didn't get the paperwork. Years later they sent me a demand for payment since I hadn't filed in years. I pointed out the company had been closed for those years, even the registration. Didn't matter, I had to file years of "no returns" for the years in question, wait for the NOA for all of them and then file a final year to officially close my HST account. According to CRA, the company was closed, no paperwork required for them.


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## tsnbmm (Mar 27, 2018)

okay i gotcha



Just a Guy said:


> While you overpaid one tax department, you possibly underpaid another. The one you overpaid won't care, the one you underpaid won't be happy and it you with fees. It's not all one happy money pot, each has their own hoard and they are very concerned with protecting it.
> 
> I once shut down a company, filed all the proper paperwork with CRA and, I thought, HST. Turns out HST didn't get the paperwork. Years later they sent me a demand for payment since I hadn't filed in years. I pointed out the company had been closed for those years, even the registration. Didn't matter, I had to file years of "no returns" for the years in question, wait for the NOA for all of them and then file a final year to officially close my HST account. According to CRA, the company was closed, no paperwork required for them.


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## Numbersman61 (Jan 26, 2015)

As a retired CPA,CA, I have one word of advice - Use a Qualified Accountant to prepare your financial statements and tax returns. The folks at H & R Black should only be used for simple tax returns - If you’re in business pay the price and use a Qualified Accountant.


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## Just a Guy (Mar 27, 2012)

As a bonus, you can write off the cost.


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## tsnbmm (Mar 27, 2018)

Good to know! Thanks



Numbersman61 said:


> As a retired CPA,CA, I have one word of advice - Use a Qualified Accountant to prepare your financial statements and tax returns. The folks at H & R Black should only be used for simple tax returns - If you’re in business pay the price and use a Qualified Accountant.


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