Getting a GST or HST Refund is Not Good News
We’re coming up to the end of the 2nd quarter, and Canadian retailers are filing their HST or GST returns. If you hear a store owner or manager say, “I’m getting a refund;” that’s not good news and may mean they are doing something wrong.
With a Value Added Tax, the amount of tax you remit quarterly is equal to the difference between the tax you paid on inventory and supplies and the tax you collected from customers. If you paid out more — which you sometimes do in the first quarter replacing inventory which sold in December — then you’re buying/spending more than you’re taking in. That’s a problem. If someone’s 4th quarter ends with them getting a refund, I would say their retail business is not viable at all. To repeat, you want to be collecting more than you are spending on rent, supplies, advertising, insurance and the big one, inventory.
But before you get very smug about this and say, “Well, we always have tax to remit…” you might want to consider payroll costs, which represent money you’re spending but for which there isn’t an input tax credit. And here, I’m preaching to myself. It’s nice for me to think we always have costs and inventory purchasing under control, but when I factor in payroll and payroll burden, it’s easy to see why my bottom line at the end of the year is not so healthy; something you might not think about while the summer breezes of July are blowing.
There are a number of resources online from countries which have a Value Added Tax similar to ours. We chose this illustration somewhat at random after looking at many.