Running a Ontario small business in Ontario is challenging enough without worrying about tax penalties. Starting in mid-2025, the Canada Revenue Agency (CRA) will roll out a tougher approach to HST (Harmonized Sales Tax) compliance, with new rules and stiffer penalties for late filings, reporting errors, and missed payments.
If you collect and remit HST, these updates could affect your bottom line—and possibly trigger audits if you’re not prepared. Here’s a breakdown of what’s changing, the risks involved, and how an experienced Ontario accounting firm can help you stay ahead of the CRA.
HST in Ontario: A Quick Refresher
HST combines the federal GST and Ontario’s PST, creating a single tax rate of 13%. Any business earning more than $30,000 annually from taxable goods or services must register, collect HST, and submit returns to the CRA on schedule.
Failing to do so—especially under the CRA’s tighter 2025 enforcement—could result in serious financial consequences.
What’s Changing with CRA’s HST Rules in 2025?
Beginning July 2025, businesses can expect:
- Higher late-filing penalties, particularly for repeat offenders.
- Stricter review of Input Tax Credit (ITC) claims, including documentation checks.
- Increased interest rates for underreported or unpaid HST amounts.
- More audits, with online retailers and service providers under greater scrutiny.
This is part of a broader move to close Canada’s tax gap and ensure compliance across all sectors.
Key HST Penalties for Ontario Small Businesses
Late Filing Penalties
Submitting your HST return after the due date could cost:
- 1% of the unpaid HST balance, plus
- 25% for each month the return remains late (up to 12 months).
For example, a return filed four months late could result in a 2% penalty on top of what you owe.
Failure to Remit Collected HST
Not sending the HST you’ve collected to the CRA can lead to:
- Daily interest charges begin the day after the deadline.
- Potential classification as tax evasion if repeated or severe.
Misreporting or Underreporting
Errors in reporting—accidental or otherwise—carry penalties of:
- 10% of the difference between reported and actual amounts.
- Up to 20% for repeated infractions.
Businesses Likely to Face Closer Scrutiny
Industries at higher risk include:
- E-commerce businesses are selling across Ontario.
- Freelancers and consultants mismanage ITCs.
- Retail stores and restaurants are underreporting cash sales.
- Construction companies are incorrectly claiming rebates.
Costly Mistakes That Trigger Penalties
To stay out of trouble with the CRA, avoid:
- Filing returns past the deadline.
- Charging the wrong HST rate.
- Claiming ineligible expenses for ITCs.
- Using rough estimates instead of precise numbers.
- Failing to register once earnings exceed $30,000 annually.
How to Safeguard Your Business
Stay on Schedule: Set reminders or work with professionals to ensure HST returns are filed before deadlines.
- Keep Comprehensive Records: Save invoices, receipts, and financial documentation to back up your claims.
- Know the Rules on ITCs: Only claim credits for legitimate business expenses to avoid triggering CRA reviews.
- Consult an Accounting Firm: An experienced Ontario accounting firm can provide accurate filings, ensure compliance, and support you during CRA audits.
What to Do If You’ve Made an HST Error
If you think a previous filing was incorrect:
- File an amendment through your CRA My Business Account.
- Consider submitting a voluntary disclosure before the CRA contacts you.
- Act quickly—penalties grow the longer you wait.
Final Word:
- The CRA’s new approach to HST compliance in Ontario is a clear sign that late filings, errors, and missed payments will no longer be overlooked.
- By working with a professional accounting firm, small business owners can avoid costly penalties, stay compliant with changing tax laws, and focus on running and expanding their business—without fear of unexpected CRA action.
Need help with HST filings or CRA correspondence?
HST filing might seem daunting, but staying organized and proactive can help you meet your obligations smoothly. By understanding the deadlines, avoiding common mistakes, and seeking professional advice when necessary, you can keep your business compliant and avoid unnecessary costs.
If you are encountering any challenges in filing your GST/HST Return, feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step toward proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.