HST reconciliation is the process of checking that the GST/HST collected or collectible on business sales, the tax paid on eligible purchases and the adjustments in the accounting records agree with the GST/HST return. It helps an Ontario business find missing invoices, incorrect tax codes, duplicate entries and differences before filing and paying.
A return should not be prepared by looking only at the bank balance or the total HST account in accounting software. The underlying sales and purchase records need to be reviewed. A business can have cash in the bank and still owe HST, or have paid suppliers but lack documents needed to support an input tax credit.
What are you reconciling?
For a business using the regular method, the basic calculation is output tax on taxable sales, less eligible input tax credits on business purchases, plus or minus applicable adjustments. The result is the net tax for the reporting period. Special methods, adjustments and situations can change the calculation, so confirm the method that applies to the business.
Output tax is the GST/HST charged or collectible on sales. Input tax credits (ITCs) are generally credits for GST/HST paid or payable on eligible purchases and expenses used in commercial activities. The word eligible matters: not every expense, every tax amount or every invoice automatically creates a full ITC.
A simple Ontario HST example
Assume an Ontario business makes $40,000 of taxable sales subject to 13% HST during a reporting period. The HST on those sales is $5,200. During the same period, it has eligible business purchases with $1,100 of fully supportable HST input tax credits. Ignoring other adjustments, the net tax would be $4,100.
Calculation: $5,200 output tax minus $1,100 eligible ITCs equals $4,100 net tax. This example assumes the regular method, that all sales in the example are taxable at 13%, and that every included ITC is fully eligible and properly documented. It is not a shortcut for deciding the treatment of actual purchases.
Step 1: Confirm the reporting period and sales completeness
Start with the reporting period shown in the CRA account and the accounting system. Run the sales report for those dates. Compare it with sales invoices, point-of-sale reports, online platform sales and any other source used to record revenue. Check that credit notes, refunds and cancellations have been recorded in the appropriate period.
A common problem occurs when a business records only the deposits received from a payment processor. If the processor deducts fees and refunds before depositing the balance, the bank feed may show less than the gross sales. Reconcile the gross sales report to the payout and record the fees and refunds separately so sales and tax are not understated.
Step 2: Check how HST was applied to sales
Review the tax code on taxable sales and confirm that the place-of-supply and supply treatment are appropriate. Ontario’s general HST rate is 13% for most taxable supplies, but not every transaction is treated the same. Some supplies may be zero-rated, exempt or subject to a different rule, and out-of-province sales can require separate analysis.
Do not force every sale to 13% just because the business operates in Ontario. For example, a business may sell a taxable service to an Ontario customer, a zero-rated export where the requirements are met, and an exempt supply. The transaction facts and the GST/HST rules determine the treatment.
Step 3: Review purchases and input tax credits
Run a purchase and expense report showing the vendor, transaction date, amount, tax code and GST/HST amount. Compare larger items with the original invoices. Check that the invoice contains the information needed to support the ITC claim and that the expense relates to the business’s commercial activities.
Look for personal purchases entered through the business account, expenses with no GST/HST charged, duplicate receipts and purchases that may be subject to restrictions. Meals and entertainment, passenger vehicles, mixed-use assets and capital purchases can require special treatment. Do not assume that the HST shown on a receipt is always fully claimable.
CRA requires businesses to keep sales and purchase invoices and other records that support GST/HST returns. If you need help reviewing tax codes and source records, Presyz offers GST/HST support alongside bookkeeping services.
Step 4: Reconcile the GST/HST control accounts
Many accounting files use separate accounts for HST collected or payable and HST paid or recoverable. Review the opening balance, tax activity during the period, journal entries and the closing balance. Investigate transactions posted directly to these accounts rather than through normal sales or purchase workflows.
A journal entry may be appropriate for a correction, but it should have a clear explanation and supporting calculation. Avoid using a journal entry merely to make the HST balance equal the return. The difference should be identified first, then corrected in the underlying transaction or with a documented adjustment.
Step 5: Compare the reconciliation with the return
Compare the sales and tax totals from the accounting reports with the amounts entered on the GST/HST return. Check the net tax calculation and any adjustments. If the return has already been filed, retain the filed copy and working papers so a later reviewer can see how the reported amount was calculated.
Scenario A: A credit card purchase is missing
A consultant has $5,000 of HST collected on sales and expects $900 of ITCs. During reconciliation, the bookkeeper finds a $2,000 equipment invoice with $260 HST that was paid on the business card but never imported. If the purchase is eligible and the invoice supports the claim, recording it may increase the ITCs for the appropriate reporting period.
Scenario B: Marketplace deposits do not equal sales
An online seller’s store report shows $18,000 of gross sales, but the bank received $16,950 after refunds, platform fees and payment processing charges. Using only the bank deposit as revenue would make the sales reconciliation incomplete. The seller should reconcile the platform report to deposits and separately record fees, refunds and tax amounts.
Scenario C: A purchase has only partial business use
A sole proprietor buys a device used for both business and personal purposes. The full HST shown on the invoice may not automatically be an ITC. The business-use percentage, the nature of the property and the applicable rules need to be considered. Record the rationale so the claim can be explained later.
Common reasons for HST differences
Sales invoices or credit notes missing from the accounting file.
Payment processor deposits recorded net of fees and refunds.
Incorrect tax codes on taxable, zero-rated or exempt transactions.
Expenses claimed without an invoice containing the required details.
Personal-use or restricted expenses treated as fully eligible ITCs.
HST payments or refunds posted to the wrong account or period.
Manual journal entries made without supporting schedules.
Keep a simple reconciliation file
For each return, keep the sales report, purchase and ITC report, HST control-account activity, adjustment explanations, reconciliation calculation and filed return confirmation. Keep invoices and related records in a way that lets you retrieve them quickly. CRA guidance generally requires GST/HST records to be retained for six years from the end of the year to which they relate.
A monthly review is useful even when the business files quarterly or annually. It allows errors to be investigated while the transactions are recent and gives the owner a better estimate of the tax liability. It also reduces the chance that one rushed review at the filing deadline will uncover months of missing information.
For businesses that want their records reviewed throughout the year, Presyz provides monthly bookkeeping and
Frequently asked questions
Should HST payable in the books equal the return amount?
The balances should be reconcilable, but they may not look identical before adjustments, payments and closing entries are recorded. Prepare a schedule that explains each difference rather than forcing the accounts to match.
Do employee wages create an HST input tax credit?
No. Wages are not a purchase of goods or services on which the employer pays GST/HST. Payroll costs should not be included as ITCs.
How often should I reconcile HST?
Review it monthly where practical, even if the filing period is quarterly or annual. Frequent checks help identify coding errors, missing records and cash-flow issues earlier.
Official references
CRA: GST/HST records to keep.
General educational content only. Verify current CRA and provincial guidance before acting.