Do I need a separate bank account for the sales tax I collect?

The law does not require a separate bank account, but it does require an outcome that a single account makes hard to hold. Section 222 of the Excise Tax Act deems the tax you collect to be held in trust, separate and apart from your own property, until it is remitted to the Receiver General. In one blended account the tax portion mixes with operating cash and gets spent without anyone noticing, because nothing on the balance shows it leaving. A separate savings account, funded on every deposit, turns an abstract legal obligation into a number you can look at.

What happens if I already spent the tax I collected?

The amount is still owed, and the trust does not disappear because the money was spent. Subsection 222(3) of the Excise Tax Act provides that if an amount deemed to be held in trust is not remitted to the Receiver General, property of the person equal in value to that amount is deemed to be held in trust from the time the tax was collected, whether or not the money was in fact kept separate. The right move is to file the return on time even if you cannot pay it all, then arrange the payment, rather than not filing at all. Filing late adds a penalty on top of the interest.

Is the sales tax I collect my money?

What is actually in the deposit

A customer settles a 1,000 dollar invoice. With GST at 5 percent, they send you 1,050 dollars. It arrives as one deposit, but it holds two very different things: 1,000 dollars that are yours, and 50 dollars that were never yours at all.

The Excise Tax Act sets this out at subsection 221(1): every person who makes a taxable supply collects the tax as an agent of the Crown. You are not the owner of that money. You are the collector of it, and the customer paid it to the government through you.

The Act then goes further than the label. Subsection 222(1) deems a person who collects an amount as or on account of tax to hold that amount in trust, in its own words, "separate and apart from the property of the person," until the amount is remitted to the Receiver General. That is a real trust obligation, not a figure of speech, and it attaches the moment the money lands.

Why it is not revenue in your books

The accounting follows the law. Collected tax is not a sale, it is a liability owed to the government. Your revenue is the 1,000 dollars, not the 1,050.

A business that records the whole deposit as revenue ends up with two errors that hide each other: sales inflated by the tax rate, and a tax liability that appears nowhere on the balance sheet. The top line looks better than it is, and the remittance arrives with nothing in the books having warned about it.

What you are allowed to take back out

The trust is not the entire tax forever. Subsection 222(2) expressly lets you withdraw from the money held in trust the input tax credits you claimed in your return for the reporting period, as and when that return is filed.

That is exactly the definition of net tax. You total the tax you collected for the period, subtract the GST/HST you paid on business purchases, and the difference is what you remit. If the difference is negative, it is a refund to you. It is also the real reason to keep your receipts: every eligible receipt reduces the amount you have to set aside.

The trap: tax billed but not yet paid

One detail catches people out. For each reporting period you account for the tax you collected and the tax you were required to collect, which means tax you billed but have not been paid.

So a large invoice issued near the end of a period and settled six weeks later still lands in the remittance for the period it was issued in. You can owe tax you have not received yet, which is one more reason not to spend the tax you already have.

When the remittance is due

Your filing frequency follows your annual taxable supplies. At 1,500,000 dollars or less, the assigned period is annual, with the option to elect monthly or quarterly. Above 1,500,000 up to 6,000,000 it is quarterly, with monthly available. Above 6,000,000 it is monthly, with no option.

Monthly and quarterly filers must file and remit no later than one month after the end of the reporting period. Annual filers generally have three months after their fiscal year end, with an exception that catches the self-employed: an individual with business income who files annually and has a December 31 fiscal year end has to pay by April 30, even though they have until June 15 to file the return. The payment date and the filing date are not the same date.

The habit that fixes this

On every deposit, move the tax portion into a separate account. It is a thirty-second habit that makes visible an obligation the law already imposes on you, and it takes the surprise out of the quarter.

We keep your books so the tax you collect sits in a liability account instead of in your sales, we calculate what you owe, and we tell you how much to hold back. If your books currently blend tax into revenue, that is a bookkeeping correction rather than bad news: your real revenue was always the amount before tax.