Introduction

HST compliance for professional corporations involves both collecting tax correctly and claiming input tax credits accurately. The three errors below do not require sophisticated tax planning to avoid — they require basic administrative consistency. But they appear with enough frequency in CRA audit adjustments to warrant specific attention.

Mistake 1: Claiming ITCs on Personal Expenses

An incorporated professional who runs personal expenses through the corporate account — and whose bookkeeper books them as business expenses — is claiming HST input tax credits on amounts that are not business expenses. The ITC system allows businesses to recover the HST paid on business inputs. It does not allow recovery of HST on personal expenses.

Common personal expenses incorrectly run through the corporate account with ITC claims: home renovation invoices, personal travel, family restaurant meals, household subscriptions. In an HST audit, the auditor reconciles ITC claims against the underlying invoices and identifies personal expenses immediately. The result: ITCs are disallowed, HST owing plus interest, and a potential gross negligence penalty if the pattern is widespread.

The fix is the same as for income tax: keep personal expenses completely out of the corporate account.

Mistake 2: Not Charging HST on All Taxable Supplies

Some professional services are exempt from HST; most are not. Physicians and dentists have partially exempt practices — clinical services are exempt, non-insured and cosmetic services are taxable. Architects provide services that are almost entirely taxable. Lawyers provide services that are taxable. Software developers provide taxable services.

The error occurs in two forms:

Not charging HST at all on a clearly taxable service — either because the professional is unaware of the obligation or because the client pushed back and the professional capitulated. The CRA does not accept "the client refused to pay HST" as a defence for not collecting it.

Not charging HST on everything taxable in a mixed-supply practice — a dental practice that charges HST on cosmetic services but not on certain non-insured services that are also taxable, or an architecture firm that charges HST on design services but not on some consultation fees.

The result: the CRA identifies uncollected HST on taxable supplies through the audit, assesses the uncollected amount (which the professional must now pay from their own funds — having failed to collect it from the client), plus interest.

Mistake 3: Filing HST on an Incorrect Reporting Period

Many small professional corporations are assigned annual HST filing — once per year, by April 30 for a December 31 fiscal year end. As taxable revenue grows past certain thresholds, the required filing frequency increases to quarterly or monthly.

The CRA automatically updates filing frequency requirements based on annual taxable revenues:

•  Under $1.5 million: annual filing permitted

•  $1.5 million to $6 million: quarterly

•  Over $6 million: monthly

A corporation that has crossed the $1.5 million threshold but is still filing annually is understating its remittance frequency. When the CRA identifies the missed filing frequency, it may assess estimated HST owing for each missed quarterly filing period — plus interest from each missed filing date.

The fix: monitor annual taxable revenue and adjust the HST filing frequency before the CRA does it for you.

When to Speak With a CPA

For any professional corporation where the HST position has not been specifically reviewed — either as part of annual tax compliance or as a standalone HST review — the three errors above are worth checking against the current practice. A single CPA consultation to confirm the HST return is accurate, the ITC claims are clean, and the filing frequency is correct costs far less than an HST audit.

Rotaru CPA provides HST compliance reviews for professional corporations. Book a consultation to review your corporation's HST position.