Chapter Twenty-One GST/HST A Confusing Landscape GST Only – Alberta GST and PST –Manitoba (5% + 7%) –Saskatchewan (5% + 5%) –PEI (5% + 10%) GST

Chapter Twenty-OneChapter Twenty-One

GST/HSTGST/HST

A Confusing LandscapeA Confusing Landscape

GST Only – AlbertaGST Only – Alberta GST and PSTGST and PST

– Manitoba (5% + 7%)Manitoba (5% + 7%)– Saskatchewan (5% + 5%)Saskatchewan (5% + 5%)– PEI (5% + 10%)PEI (5% + 10%)

GST and QST – Quebec (5% + 7.5%)GST and QST – Quebec (5% + 7.5%)

© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 22

A Confusing LandscapeA Confusing Landscape

HST at 12 Percent – British ColumbiaHST at 12 Percent – British Columbia HST at 13 PercentHST at 13 Percent

– New BrunswickNew Brunswick– NewfoundlandNewfoundland– OntarioOntario

HST at 15% - Nova ScotiaHST at 15% - Nova Scotia



Transaction Tax ConceptsTransaction Tax Concepts

Manufacturer

Wholesaler

Retailer

Customer


Single Stage Transaction Tax – Single Stage Transaction Tax – Retail Sales TaxRetail Sales Tax

5% ($50,000) = $2,5005% ($50,000) = $2,500


Account-Based VATAccount-Based VAT

Manufacturer = 5% ($10,000)Manufacturer = 5% ($10,000) $ 500$ 500 Wholesaler = 5% ($15,000)Wholesaler = 5% ($15,000) 750750 Retailer = 5% ($25,000)Retailer = 5% ($25,000) 1,250 1,250

$2,500$2,500


Invoice-Credit VAT (GST) Invoice-Credit VAT (GST)

Manufacturer 5%($10,000) Manufacturer 5%($10,000) $ 500$ 500 WholesalerWholesaler

– 5%($25,000)5%($25,000) $1,250$1,250– 5%($10,000)5%($10,000) ( 500)( 500) 750750

RetailerRetailer– 5%($50,000)5%($50,000) $2,500 $2,500 – 5%($25,000)5%($25,000) ( 1,250)( 1,250) 1,2501,250

TotalTotal $2,500$2,500


Liability For GST/HSTLiability For GST/HST

ETA 165(1) - ... every recipient of a ETA 165(1) - ... every recipient of a taxable supply made in Canada shall taxable supply made in Canada shall pay to her majesty in right of Canada, pay to her majesty in right of Canada, tax in respect of the supply calculated tax in respect of the supply calculated at the rate of 5% on the value of the at the rate of 5% on the value of the consideration for the supply.consideration for the supply.


Liability For GST/HSTLiability For GST/HST

The liability is on the The liability is on the purchaser of the goods purchaser of the goods and services.and services.


The Concept Of SupplyThe Concept Of Supply

ETA 123 – “Supply” ETA 123 – “Supply” means the provision of means the provision of property or a service in property or a service in any manner, including any manner, including sale, transfer, barter, sale, transfer, barter, exchange, license, exchange, license, rental, lease, gift, or rental, lease, gift, or disposition.disposition.



Taxable SuppliesTaxable Supplies– Supplies made in the course of commercial Supplies made in the course of commercial

activityactivity

IncludesIncludes– Fully taxable at 5%Fully taxable at 5%– Zero-ratedZero-rated

taxable at 0%taxable at 0% vendor gets input tax creditsvendor gets input tax credits



Commercial ActivityCommercial Activity– In general: business carried on by a person, In general: business carried on by a person,

including an adventure in the nature of tradeincluding an adventure in the nature of trade– ExclusionsExclusions

no expectation of profitno expectation of profit exempt suppliesexempt supplies employment servicesemployment services


Supply CategoriesSupply Categories

Fully Taxable SuppliesFully Taxable Supplies

– Full Tax (GST/HST) And Full Tax (GST/HST) And Full ITCsFull ITCs

– ExamplesExamples TravelTravel ClothingClothing Restaurant MealsRestaurant Meals ElectriciansElectricians



Zero-Rated SuppliesZero-Rated Supplies– Tax At 0%, Full ITCsTax At 0%, Full ITCs– ExamplesExamples

Basic GroceriesBasic Groceries Prescription DrugsPrescription Drugs ExportsExports Foreign TravelForeign Travel



Exempt SuppliesExempt Supplies– No Tax, No ITCsNo Tax, No ITCs– ExamplesExamples

Health CareHealth Care Used Residential Used Residential

HousingHousing Financial ServicesFinancial Services


Applying the GST/HST RatesApplying the GST/HST Rates

Basic approachBasic approach– Rate is applied to consideration receivedRate is applied to consideration received– Includes all non-refundable federal taxesIncludes all non-refundable federal taxes– Provincial sales taxesProvincial sales taxes

Quebec and PEI include GST in baseQuebec and PEI include GST in base Other Provinces (non-HST) do notOther Provinces (non-HST) do not


Applying the GST/HST RatesApplying the GST/HST Rates

On Trade-Ins – GST/HST on Net AmountOn Trade-Ins – GST/HST on Net Amount

Example: An individual acquires a new Buick at a cost of $38,000. He trades in his old Toyota and receives an allowance of $17,000, paying the net amount of $21,000 .

GST = [(5%)($21,000)] = $1,050


Collection And Remittance Of Collection And Remittance Of GST/HSTGST/HST

Liability is on Liability is on recipient of supply.recipient of supply.

Provider responsible Provider responsible for collection and for collection and remittanceremittance


Requirement To RegisterRequirement To Register

A person is required to A person is required to register if the person is register if the person is providing taxable supplies in providing taxable supplies in Canada.Canada.

An exception for “small An exception for “small suppliers”.suppliers”.


Small Supplier ExemptionSmall Supplier Exemption

Small Supplier Small Supplier ThresholdThreshold– <$30,000 per year in <$30,000 per year in

taxable suppliestaxable supplies

May Voluntarily May Voluntarily RegisterRegister– may want input tax may want input tax

credits.credits.


Small Supplier ExemptionSmall Supplier Exemption

Last 4 Calendar Quarters Last 4 Calendar Quarters TestTest– Over $30,000 on cumulative Over $30,000 on cumulative

basisbasis

Calendar QuarterCalendar Quarter– Over $30,000 in a single Over $30,000 in a single

quarterquarter


Input Tax CreditsInput Tax Credits

Costs Other Than Capital CostsCosts Other Than Capital Costs– No MatchingNo Matching– Prorated For Taxable UsageProrated For Taxable Usage

≥ ≥ 90% = All90% = All ≤≤ 10% = None10% = None



Capital CostsCapital Costs– No Matching Or AllocationNo Matching Or Allocation– Real Property: Real Property:

Pro Rate Based On Pro Rate Based On Commercial UsageCommercial Usage

– Other:Other: > 50% Commercial – 100%> 50% Commercial – 100% ≤ ≤ 50% Commercial - Nil50% Commercial - Nil



Restrictions On Certain CostsRestrictions On Certain Costs– Club DuesClub Dues– 50% Meals And Entertainment50% Meals And Entertainment– Auto Costs > $30,000Auto Costs > $30,000– Reasonable In CircumstancesReasonable In Circumstances


GST/HST And AccountingGST/HST And Accounting

No MatchingNo Matching No Allocation No Allocation

(Amortization, etc.)(Amortization, etc.) Some Deductions Some Deductions

Don’t Influence GST Don’t Influence GST (e.g., Wages, Interest)(e.g., Wages, Interest)


Example – Alberta Business Example – Alberta Business

GAAP Income StatementGAAP Income StatementSalesSales $6,700,000 $6,700,000

Cost Of SalesCost Of Sales ( 4,200,000)( 4,200,000)

Amortization ExpenseAmortization Expense ( 1,400,000)( 1,400,000)

SalariesSalaries ( 500,000)( 500,000)

Other ExpensesOther Expenses ( 200,000)( 200,000)

TotalTotal $ 400,000 $ 400,000


Example (Continued)Example (Continued)

Other Information:Other Information: Capital Expenditures Capital Expenditures

- $2,000,000 for a building (40% commercial)- $2,000,000 for a building (40% commercial)- $1,000,000 for equipment (70% commercial)- $1,000,000 for equipment (70% commercial)

Purchases of goods for resale were $4,500,000Purchases of goods for resale were $4,500,000 Other Expenses of $200,000, related to fully taxable Other Expenses of $200,000, related to fully taxable

suppliessupplies $5,000,000 of sales were fully taxable, the remainder $5,000,000 of sales were fully taxable, the remainder

were exemptwere exempt No provincial sales taxes in AlbertaNo provincial sales taxes in Alberta


Solution To ExampleSolution To Example

Sales (5%)($5,000,000)Sales (5%)($5,000,000) $250,000 $250,000

Purchases (5%)($4,500,000)Purchases (5%)($4,500,000) ( 225,000)( 225,000)

Other Expenses (5%)($200,000)Other Expenses (5%)($200,000) ( 10,000)( 10,000)

Building Building

(5%)($2,000,000)(40%)(5%)($2,000,000)(40%) ( 40,000)( 40,000)

Equipment Equipment

(5%)($1,000,000)(100%)(5%)($1,000,000)(100%) ( 50,000)( 50,000)

GST Payable (Refund)GST Payable (Refund) ($ 75,000)($ 75,000)


Relief For Small BusinessRelief For Small Business

Quick MethodQuick Method– <$200,000 Taxable Sales<$200,000 Taxable Sales– Collect Usual GST/HSTCollect Usual GST/HST– Don’t Track ITCs, except Don’t Track ITCs, except

for capital expendituresfor capital expenditures– Apply Given % To GST Apply Given % To GST

Inclusive Sales (Varies By Inclusive Sales (Varies By Province (see Figure 21-4 Province (see Figure 21-4 in text)in text)

– 1% credit on first $30,0001% credit on first $30,000


Example Example

Annual filing retail store in Alberta has annual sales of Annual filing retail store in Alberta has annual sales of $125,000, resulting in GST included sales of $131,250. In $125,000, resulting in GST included sales of $131,250. In addition, there are $20,000 in capital expenditures.addition, there are $20,000 in capital expenditures.

– Basic Tax [(1.8%)($131,250)]Basic Tax [(1.8%)($131,250)] $ 2,363$ 2,363– Credit [(1%)($30,000)]Credit [(1%)($30,000)] ( 300)( 300)– Capital Expenditures (5%)($20,000)Capital Expenditures (5%)($20,000) ( 1,000)( 1,000)– GST PayableGST Payable $1,063$1,063


Relief For Small BusinessRelief For Small Business

Simplified ITC AccountingSimplified ITC Accounting– GST On Sales – Regular ProceduresGST On Sales – Regular Procedures– Input tax credits based on a multiplier applied to Input tax credits based on a multiplier applied to

most purchasesmost purchases

GST/HST Rate ÷ 100 + GST/HST RateGST/HST Rate ÷ 100 + GST/HST Rate

– Excluded from multiplier calculation:Excluded from multiplier calculation: Capital expenditures for real propertyCapital expenditures for real property Purchases of zero-rated suppliesPurchases of zero-rated supplies Purchases from non-registrantsPurchases from non-registrants Cost not eligible for input tax credits (e.g., 50 Cost not eligible for input tax credits (e.g., 50

percent of meals)percent of meals)– Must track capital expenditures on real property Must track capital expenditures on real property

separatelyseparately


GST/HST Procedures And AdministrationGST/HST Procedures And Administration

LiabilityLiability– Revenues when customer is invoicedRevenues when customer is invoiced– Input tax credits when invoice is issuedInput tax credits when invoice is issued



Taxation YearTaxation Year– Will have fiscal yearWill have fiscal year– Usually the same as Usually the same as

income tax fiscal yearincome tax fiscal year If non-calendar income tax If non-calendar income tax

year;year; Can use calendar year for Can use calendar year for

GST/HSTGST/HST



FilingFiling– Taxable sales Taxable sales > $6,000,000> $6,000,000

Monthly FilingMonthly Filing Returns one month after the end of Returns one month after the end of

the filing periodthe filing period– Taxable sales between Taxable sales between

$1,500,001 and $6,000,000$1,500,001 and $6,000,000 Quarterly filingQuarterly filing Returns one month after the end of Returns one month after the end of

the filing periodthe filing period– Taxable sales < $1,500,001Taxable sales < $1,500,001

Annual filingAnnual filing Three months after the end of the Three months after the end of the

filing periodfiling period



Payment, Instalments and InterestPayment, Instalments and Interest– Payment is due when returns are duePayment is due when returns are due– Annual filers may be required to pay quarterly Annual filers may be required to pay quarterly

instalmentsinstalments– Non-deductible interest at prescribed rate plus 4 Non-deductible interest at prescribed rate plus 4

percent (2 percent on amounts owing to the percent (2 percent on amounts owing to the taxpayer)taxpayer)

– Late filing penalty of one-quarter of one percent Late filing penalty of one-quarter of one percent per month, for a maximum of 12 monthsper month, for a maximum of 12 months



AppealsAppeals– Informal proceduresInformal procedures– Notice of objectionNotice of objection

90 days after the date on the 90 days after the date on the notice of objectionnotice of objection

– Tax Court Of CanadaTax Court Of Canada– Federal Court Of AppealsFederal Court Of Appeals– Supreme Court Of CanadaSupreme Court Of Canada


Employee/Partner GST/HST RebateEmployee/Partner GST/HST Rebate

Employees and partners are usually non-Employees and partners are usually non-registrantsregistrants

Employees and partners have deductible Employees and partners have deductible expenses on which GST/HST is paidexpenses on which GST/HST is paid

The rebate allows them to recover this GST/HSTThe rebate allows them to recover this GST/HST– Must be employee or partner of an employer or Must be employee or partner of an employer or

partnership that is a GST registrantpartnership that is a GST registrant– Also government employeesAlso government employees– Expenses must be non-reimbursedExpenses must be non-reimbursed


Employee/Partner GST/HST RebateEmployee/Partner GST/HST Rebate

CalculationCalculation

– Multiply eligible expenses by Multiply eligible expenses by

GST/HST Rate ÷ 100 + GST/HST RateGST/HST Rate ÷ 100 + GST/HST Rate

– Rebate is a refund of GST/HST Rebate is a refund of GST/HST paid on costs that were deducted paid on costs that were deducted for income tax purposesfor income tax purposes

– Rebate is added to income or Rebate is added to income or deducted from UCC in the year it deducted from UCC in the year it is received is received


New Housing RebateNew Housing Rebate

GST /HST paid at usual rateGST /HST paid at usual rate

Rebate available equal to 36 Rebate available equal to 36 percent of GST paidpercent of GST paid

Maximum = $6,300 [(5%)Maximum = $6,300 [(5%)($350,000)(36%)]($350,000)(36%)]

Phase out provisionPhase out provision

If harmonized: provincial If harmonized: provincial rebates varyrebates vary


New Housing Rebate ReductionNew Housing Rebate Reduction(Non-Harmonized Province)(Non-Harmonized Province)

[A][($450,000 – B) ÷ $100,000]

Where:

A = The lesser of 36 percent of theGST paid and $6,300[(5%)(36%)($350,000)]

B = The greater of $350,000 and thecost of the home


New Housing Rebate - ExampleNew Housing Rebate - ExampleExample

On July 1, 2010, Gary and May Lartch acquire a new home in Alberta at a cost of $385,000. GST paid was $19,250 [(5%)($385,000)]

Rebate

[$6,300][($450,000 - $385,000) ÷ $100,000 =

$4,095


Documents

Chapter Twenty-One GST/HST A Confusing Landscape GST Only – Alberta GST and PST –Manitoba (5% + 7%) –Saskatchewan (5% + 5%) –PEI (5% + 10%) GST