One of the first audit steps that the CRA will perform in your brokerage is a review of the HST/GST number’s that your agents are using. Why? Because if their registration number is not valid, then the HST that you have paid them and claimed as an input tax credit will be denied…immediately! Ka-ching!
In the brokerWOLF program we have a check sum formula that validates the registration number for you. But just like any formula, this can be spoofed with a wrong number and it doesn’t mean that the number is assigned to that agent anyway.
Now, here is the real issue that has caught a number of brokerages during audits. When an agent goes through a personal bankruptcy, and any office in business long enough will have a few of these, their HST registration number is cancelled. They actually have to apply for a new one. But what happens is that the brokerage just goes along like before, paying the agent commissions and including HST without ever thinking about a new registration number for the agent.
And this is where the CRA will pounce. And if they deny the input tax credit, their answer to your wailing will be “just go and collect it from the agent since you paid it to them when you shouldn’t have”. Hah! As if the agent has that money just sitting around in a little pile for you. The reality is that having an agent go bankrupt and then start over again is like hiring that agent all over again from a tax perspective. You need to get their new HST registration number to protect yourself!
And we would recommend that at least once a year you have each agent provide you with a copy of their HST return forms. If they are registered they will be getting a return and you should keep a copy in their agent folder to back yourself up during an audit. A little bit of record keeping will go a long way in a CRA audit!