GST & HST Implications from COVID-19
When a supplier is required to collect the GST/HST on a product or service provided to a customer, the GST/HST is required to be remitted to the CRA based on when the GST/HST was considered to be collectible and not when the payment from the customer is actually received. This means that under the normal filing rules, the GST/HST included on invoices in a given month could be due as early as the end of the following month regardless of whether or not the supplier has received payment for the amount invoiced.
It is likely that the many companies will take longer pay their invoices in an effort to improve liquidity due to the recent negative economic impact of the COVID-19 pandemic. This could create cash flow problems for suppliers if they are required to remit the GST/HST invoiced before they have received payment from their customers. For this reason, the federal government announced on March 27, 2020 that businesses, including self-employed individuals, would be permitted to defer certain payments of GST/HST as well as customs duties owing on imports until June 30, 2020.
For GST/HST, the deferral will apply to the following reporting periods:
- Monthly filers: February, March and April 2020
- Quarterly filers: January 1, 2020 to March 31, 2020 reporting period
- Annual filers: any amounts collected in respect of the previous fiscal year as well as installments due before June 30, 2020. While the federal government has not specified, we expect this deferral relates to fiscal years ending in December 2019, January 2020 and February 2020 which would be consistent with the logic applied to the monthly and quarterly deferrals.
The deferral includes amounts owing for March, April, and May in respect of GST and customs duty payments for imported goods.
Please note that there is no mention of an extension to the filing deadline for any of the above-noted returns. Since late-filing penalties are generally based on balances owing at the filing deadline, it is unclear how any such penalties would be levied on a return that is filed late. Therefore, we recommend that returns be filed on time even though payment can be deferred.
More information can be found at: https://www.canada.ca/en/department-finance/economic-response-plan/covid19-businesses.html#deferral_sales_tax_remittance_customs_duty_payments
GST/HST Filing Requirements for Bad Debts:
In the event that a receivable is no longer collectible, a deduction for the GST/HST previously collected and remitted in respect of the bad debt can be claimed on line 107 on the HST return for the period in which the receivable became uncollectible. Reasonable efforts must be taken to collect the debt, a deduction based on a general allowance is not permitted and no deduction is allowed in respect of a bad debt if the parties are not dealing at arm’s length. In the event the supplier is able to recover an amount that was previously written off, the amount to be remitted should be reported on line 104, instead of line 103 where GST/HST collected on taxable supplies is generally reported.