Sales Tax (GST/HST) Reasonability Test

It is very important that you claim all the input tax credits (GST/HST paid on purchases and expenses) for
the period for which either you are preparing the financial statements of the business, or you are filing a
sales tax return with CRA or with State Finance Department in the United States. You ensure this by
preparing Sales Tax Reasonability Test. While doing this test, you also ensure that you have collected the
appropriate amount of sales tax as applicable, and in total, it matches with your liability side of the sales
tax general ledger for the period.

A sales tax reasonability test is a test used to determine whether a business is required to collect and
remit sales tax on a particular transaction or in a particular jurisdiction. The test typically involves
analyzing various factors, such as the location of the seller and the buyer, the nature of the product or
service being sold, and the applicable sales tax laws and regulations.

The sales tax reasonability test helps businesses determine whether they have a sales tax obligation and,
if so, how much sales tax they need to collect and remit to the appropriate taxing authority. Failing to
collect and remit sales tax when required can result in penalties and interest charges, which can be
costly for a business.
The sales tax reasonability test can vary depending on the jurisdiction, as each state and local
government may have different sales tax laws and regulations. Businesses should consult with a
qualified tax professional or review the relevant sales tax laws and regulations to ensure they are
properly collecting and remitting sales tax.

Under the list of our best practices, when the bookkeeping is done by the bookkeeping tailor, before
reporting, it is a must that the Sales Tax Responsibility Test is performed and it is reviewed by a senior
staff member of the bookkeeping tailor’s team.