In Canada, the Harmonized Sales Tax (HST) is a value-added tax. It combines the federal Goods and Services Tax (GST) with the provincial sales tax (PST) in participating provinces. Businesses that make taxable supplies over the small supplier threshold must follow certain requirements. This threshold is $30,000 in worldwide revenues over four consecutive calendar quarters. Such businesses are obligated to register for, collect, and remit HST. Nonetheless, there are situations when a business can choose—or be required—to deregister from the HST. This article outlines when and how to deregister, the consequences of doing so, and the steps involved in the process.
BOOKS ON TAX AND SMALL BUSINESSES
When to Deregister from the HST
A business may voluntarily or mandatorily deregister from the HST for several reasons:
1. Business Closure: If a business permanently stops operating, it must cancel its HST registration. Examples would include Bankruptcy, Receivership, Death of a sole proprietor.
2. Small Supplier Status: If the taxable revenues fall below $30,000 over the last four calendar quarters, the business may no longer be required to remain registered and can voluntarily deregister.
3. Change in Business Structure: A sole proprietorship that incorporates or enters into a partnership may need to cancel the existing HST number and register under the new legal structure. Some other examples may include mergers or amalgamations.
4. Non-resident Ceases Carrying on Business in Canada: Non-residents who no longer carry on business in Canada or have no fixed place of business may be required to deregister.
5. Change in Eligibility: If a business is no longer making taxable supplies in Canada or business activities are exempt from HST, deregistration may be appropriate.
Consequences of Deregistration
Deregistering from the HST has both tax and administrative implications:
– Once deregistered, a business can no longer collect HST from customers.
– Before deregistration is approved, the business must remit any outstanding HST collected or owed to
the Canada Revenue Agency (CRA).
-Deemed Disposition of Assets: Upon deregistration, a business may be considered to have sold its
business assets at fair market value and may need to account for HST on those deemed sales.
-Loss of Input Tax Credits (ITCs): Once deregistered, a business can no longer claim ITCs for HST paid on business expenses.
How to Deregister from the HST
The CRA allows businesses to cancel their HST registration through several channels. Here is a guideline for the process:
1. Ensure the business is eligible to Deregister
Before initiating deregistration, confirm that the business meets one of the valid reasons listed above. If the business is a small supplier, verify that the total revenues fall below the threshold.
2. Submit a Request to the CRA
HST deregistration can be requested in the following ways:
–Online: Log in to your CRA My Business Account or the authorized representative can use Represent a
Client. Use the “Request to close accounts” option.
–Mail or Fax: Complete Form RC145 – Request to Close Business Number (BN) Accounts and send it to
the nearest tax services office.
The Business Number (BN), the effective date of cancellation, and the reason for deregistration will need to be provided to finalize the deregistration.
3. File the Final HST Return
After the cancellation request has been submitted, the CRA will determine the final reporting period. The business must file the last HST return, which includes:
– All HST collected up to the cancellation date.
– Input Tax Credits for eligible purchases made before cancellation.
– Any adjustments, including deemed dispositions of capital property or inventory.
All outstanding HST amounts owing has to be paid. The CRA may assess penalties or interest if the business fails to do so. Deregistering from the HST is a significant administrative step that requires careful consideration and compliance. Whether closing a business, downsizing, or restructuring, it is essential to make sure that all HST-related obligations are fulfilled. Keep detailed records, consult an accountant or tax advisor, to ensure a smooth and compliant deregistration process.