Your small business clients may be so busy keeping their businesses growing that they don’t have time to pay attention to little details like what appears on a customer’s receipt. But if they neglect certain items on that receipt, they could end up in trouble with the Canada Revenue Agency. Making sure your business customers’ receipts are properly prepared can help save them from a tax audit.
Most business owners know that receipts should include a description of the products purchased, the date of the purchase, and the name and address of the buyer and seller. But there’s a vital last piece of information required if your client plans to claim the HST amount shown on the receipt: the GST/HST registration number of the vendor. Without this number, the receipt is likely to be disallowed by the CRA.
The CRA often does HST reviews and audits looking for this very thing. When it finds receipts that don’t include the GST/HST registration number, those receipts are disallowed. If it sees a lot of receipts without the required information, it often stops reviewing individual receipts and just disallows all the HST your client claimed and paid during the period under review. This can be financially disastrous for a small business. For example, if an HST return shows $10,000 in HST set against $5,000 in input tax credits for HST paid, the CRA could end up disallowing all the input tax credits, with the result that your client ends up owing $10,000 rather than $5,000.
The only recourse if this occurs is to collect copies of all the receipts from that period, sort them so you have all the receipts with the required information in one pile, and then resubmit that set of receipts to the CRA to claim the HST payments. All this must be done by the CRA’s deadline.
By instructing your clients about the CRA’s strict regulations regarding receipts, you can help save them (and yourself) the difficulties of an audit and the possible disallowance of tax credits later on.