TL;DR
Forecasting cash outflows without including GST/HST makes your projections unreliable. The tax you pay out today and recover later from CRA creates a real cash float gap that most owners do not account for.
Most business owners build their cash outflow forecasts from invoice amounts and forget the GST/HST sitting on top. The result is a forecast that looks fine until the bills come due, and you are suddenly short on cash you thought you had.
This is one of the most common cash flow blind spots I see. It is not a bookkeeping error. It is a forecasting error, and it compounds every time you add a large vendor payment to your model.
What Owners Get Wrong
The typical mistake is building payables forecasts off the net invoice amount. You owe a supplier $10,000. You put $10,000 in your cash outflow schedule. But the cheque you cut is $11,300 because GST/HST is $1,300.
Multiply that across several vendor payments in a month and your forecast is off by thousands. When you are managing a tight cash position, that gap matters.
The other version of this mistake is knowing that GST/HST is there but assuming it nets to zero because you recover it through your input tax credits. That logic is correct in theory, but the timing is wrong. You pay the GST/HST out on day one when you write the cheque. You recover it weeks or months later when you file your return and collect the ITC. The gap between paying and recovering is real cash leaving your account.
The CFO Perspective
When I build a cash flow model for a client, I always run two separate lines for each significant payable: the net amount and the GST/HST component. They hit the cash account at the same time, but they belong in different buckets for planning purposes.
Consider a generic example. A contractor business spends roughly $80,000 per month on subcontractors and materials, all GST/HST-applicable. At 13% HST in Ontario, that is about $10,400 per month going out the door in tax. They file quarterly. So in any given quarter, they are floating up to $31,200 in HST paid before they file and recover it. That is not a trivial number for a small operation.
The owner had been telling themselves the business had healthy cash reserves. The cash was there, technically, but a large chunk of it was already spoken for as a receivable from CRA that had not landed yet. Once we separated it out, we restructured their payables schedule and moved to monthly HST filing, which tightened the float cycle considerably.
How to Model It Correctly
There is no single right format, but here is a simple approach that works for most small businesses.
- Separate the net and tax amounts in your forecast. When you log a payable, record the net amount and the GST/HST as separate line items. Your accounts payable balance should include both. Your cash outflow forecast should include both.
- Track the ITC receivable as a separate current asset. The GST/HST you paid and expect to recover is money owed to you by CRA. It belongs on your balance sheet as a receivable, not as a mystery variance in your cash account.
- Know your filing frequency and model the recovery timing. Monthly filers recover faster than quarterly filers. If you are filing quarterly and your payables are large, the ITC lag is a real liquidity item. Consider whether switching to monthly filing makes sense.
- Include the net HST remittance in your outflow schedule too. On the flip side, if you are collecting HST on sales, that cash is not yours. It is a liability. Your forecast needs to show the remittance going out when you file. Many owners leave this off and then wonder why filing month always feels brutal.
- Reconcile your model to your GST/HST account in your accounting software at least monthly. The balance in that account should match your expected remittance or recovery. If it does not, something is miscoded and your forecast is wrong by that amount.
A Note on Exempt and Zero-Rated Purchases
Not everything you buy has GST/HST. Some vendors are small suppliers below the registration threshold, some categories are exempt, and some are zero-rated. If you are working in a sector where a meaningful portion of your purchases do not attract GST/HST, adjust your model to reflect that. Applying a flat tax rate to all payables will overstate your ITC receivable and skew your forecast in the other direction.
When in doubt, ask your bookkeeper to tag transactions by tax code so you can pull accurate totals by period. This is especially useful if your business mixes taxable and non-taxable inputs regularly.
What to Do About It
- Pull your last three months of payables and check whether your cash flow model included GST/HST in the outflow amounts. If not, recalculate and see how large the gap was.
- Ask your bookkeeper to confirm that your GST/HST payable account is reconciled and current. A stale or incorrect balance here distorts both your cash position and your working capital ratio.
- Decide on your filing frequency. If the ITC recovery lag is creating real cash pressure, monthly filing is worth the additional admin cost.
- Update your forecast template so GST/HST is always a distinct line. It should never be buried inside the net payable.
Getting this right does not take a major overhaul. It takes one conversation with your bookkeeper and a small change to how you structure your cash model. If your projections keep coming up short even when revenue looks healthy, this is often the culprit. Book a free call at peterxiacpa.com/book.
Next step: see it in your free Instant CFO Snapshot.
Frequently Asked Questions
- Should accounts payable on the balance sheet include GST/HST?
- Yes. When a supplier invoice includes GST/HST, the full amount including tax is what you owe until you pay it. Both the net amount and the tax component should be reflected in your accounts payable balance and in your cash outflow forecast.
- Why does filing monthly for GST/HST help with cash flow?
- Monthly filers recover their input tax credits more frequently than quarterly filers. If you are paying significant GST/HST on purchases, switching to monthly filing shortens the period you are floating that cash before CRA reimburses you through your ITC claim.
- What happens if I forget to include HST remittances in my cash forecast?
- Your available cash will look higher than it actually is. The HST you collect on sales belongs to CRA. If you do not earmark it in your forecast, you will be surprised by the outflow when your filing is due, which can cause a temporary cash shortfall even when business looks fine.
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