What is 'net tax' when filing an HST return in Ontario?
Net tax is the core calculation on every HST return: it is the HST you collected from your customers (your "output tax") minus the HST you paid on business inputs for which you are claiming input tax credits (your "input tax"). The result is what you either pay to the CRA or receive as a refund.
For most businesses: Net tax = HST collected − ITCs claimed. If you collected $10,000 in HST and paid $3,000 in HST on business expenses, your net tax is $7,000 owing to the CRA. If your ITCs exceed your output tax — common for businesses with large capital purchases or a mix of zero-rated and taxable supplies — you receive a net refund.
It sounds simple but complexity arises quickly. Not all HST you pay is claimable as an ITC (e.g., HST on meals and entertainment is only 50% claimable; HST on personal use portions of mixed-use property must be prorated). Special quick method elections can also change how net tax is calculated for smaller businesses. Keeping meticulous records of every input and output is essential.
Key takeaways
- Net tax = HST collected from customers minus ITCs for business purchases.
- A positive net tax means you owe the CRA; a negative means you get a refund.
- Not all HST paid on inputs is fully claimable — meals, personal use, and exempt activities reduce ITCs.
- The quick method election changes the calculation formula for eligible small businesses.