As of mid-2025, Ontario small business owners face stricter enforcement of HST (Harmonised Sales Tax) compliance. The Canada Revenue Agency (CRA) has updated its penalty framework, introducing tougher consequences for late HST filings, incorrect HST returns, and non-compliance. Understanding these new rules is crucial if you want to avoid steep fines and interest charges.

In this article, we’ll walk through what the new HST penalties mean for your Ontario-based small business, what steps you can take to stay compliant, and how a professional accounting firm like GTA Accounting can help you manage your obligations under Canada’s tax laws.

What Is the HST?

HST, or Harmonised Sales Tax, is a combination of the federal GST (Goods and Services Tax) and the provincial PST (Provincial Sales Tax). In Ontario, the HST rate is 13%. If your business makes more than $30,000 in annual revenue, you’re required to register for HST, collect it on taxable goods and services, and file returns to the CRA regularly.

What’s Changing in 2025?

Starting in July 2025, the CRA is:

  • Increasing penalties for repeated late filings of HST returns.
  • Introducing stricter monitoring of HST input tax credit claims.
  • Applying interest charges more aggressively for underreported tax.
  • Auditing more e-commerce and service-based businesses operating in Ontario.

This is part of the CRA’s larger push to modernise tax enforcement and reduce the tax gap in Canada.

Key Penalties Ontario Small Business Owners Must Know

Here are some of the new or updated HST-related penalties that Ontario businesses should be aware of:

1. Late Filing Penalty

Failing to file your HST return by the due date may result in:

  • A penalty of 1% of the outstanding HST owed, plus
  • An additional 0.25% per month (up to 12 months).

This means that if your HST return is filed 4 months late, you could face a penalty of 2% of the total unpaid HST.

2. Failure to Remit Collected HST

If you collect HST from your customers and fail to remit it:

  • You’ll be subject to interest on unpaid amounts starting the day after the due date.
  • The CRA may consider this tax evasion in repeated or severe cases.

3. Misreporting or Underreporting

Filing incorrect numbers—whether accidental or deliberate—can lead to:

  • A 10% penalty on the difference between the reported and correct amount.
  • If misreporting is repeated, penalties can go up to 20%.

What Types of Businesses Are Most at Risk?

The CRA is placing more attention on:

  • Online retailers operating in or shipping to Ontario.
  • Freelancers and consultants are not properly tracking input tax credits.
  • Restaurants and retail stores that underreport cash sales.
  • Construction companies are claiming HST rebates inaccurately.

Common Mistakes That Lead to HST Penalties

To stay compliant, you must avoid common mistakes like:

  • Filing your HST return late.
  • Charging the wrong HST rate.
  • Not registering for HST after passing the $30,00
  • Claiming input tax credits on ineligible expenses.
  • Using estimates rather than actual figures.

These mistakes not only lead to HST penalties, but they can also trigger audits and even freeze your CRA account if left unresolved.

How to Protect Your Business

Here are steps you can take to avoid running into trouble with the CRA:

File on Time

Use accounting software or a professional tax service to ensure your HST returns are submitted before the deadline.

Keep Clear Records

Retain all receipts, invoices, and documentation related to HST you collect and remit.

Understand Input Tax Credits

Ensure you're only claiming ITCs (Input Tax Credits) on eligible business expenses. Personal expenses or capital expenditures may not qualify.

Get Professional Help

Work with an accounting firm in Ontario like GTA Accounting, which understands the latest CRA regulations and offers HST compliance services tailored to small business owners.

What If You've Made a Mistake?

If you suspect you’ve made a mistake on a past HST filing:

  • You can amend your return through the CRA My Business Account.
  • Or, submit a voluntary disclosure before being contacted by the CRA, which may reduce penalties.

Delaying action may result in a CRA audit or legal action—so acting early is always the safer route.

What Sets GTA Accounting Apart?

At GTA Accounting, we help small businesses in Ontario stay on top of:

  • HST registration and filing
  • Payroll tax compliance
  • Corporate tax planning
  • CRA audit support

We stay up to date on all federal and provincial tax law changes—including new HST penalties—to protect your business from unnecessary financial risk.

Whether you run a retail store, e-commerce site, consultancy, or freelance business, our accountants in Toronto, Mississauga, Brampton, and across the GTA can help.

Final Thoughts

The new HST penalties in Ontario are a wake-up call for small business owners to take compliance seriously. Filing late or making errors may now cost significantly more than in previous years.

With help from GTA Accounting, you can:

  • Stay compliant,
  • Avoid penalties, and
  • Focus on running and growing your business.

If you're unsure about your current HST setup or have received a CRA notice, now is the time to get expert support. Our tax professionals are ready to help you handle the changes and plan for future success.

Need help with HST filings or CRA correspondence?
Contact GTA Accounting today — serving small businesses across Ontario with reliable and compliant tax services.