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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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 33
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 44
Transaction Tax ConceptsTransaction Tax Concepts
Manufacturer
Wholesaler
Retailer
Customer
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 55
Single Stage Transaction Tax – Single Stage Transaction Tax – Retail Sales TaxRetail Sales Tax
5% ($50,000) = $2,5005% ($50,000) = $2,500
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 66
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 77
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 88
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.
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 99
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.
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 1010
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.
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 1111
The Concept Of SupplyThe Concept Of Supply
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 1212
The Concept Of SupplyThe Concept Of Supply
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 1313
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 1414
Supply CategoriesSupply Categories
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 1515
Supply CategoriesSupply Categories
Exempt SuppliesExempt Supplies– No Tax, No ITCsNo Tax, No ITCs– ExamplesExamples
Health CareHealth Care Used Residential Used Residential
HousingHousing Financial ServicesFinancial Services
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 1616
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 1717
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 1818
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 1919
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”.
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 2020
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.
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 2121
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 2222
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 2323
Input Tax CreditsInput Tax Credits
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 2424
Input Tax CreditsInput Tax Credits
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 2525
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)
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 2626
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 2727
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 2828
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)
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 2929
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 3030
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 3131
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 3232
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 3333
GST/HST Procedures And AdministrationGST/HST Procedures And Administration
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 3434
GST/HST Procedures And AdministrationGST/HST Procedures And Administration
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 3535
GST/HST Procedures And AdministrationGST/HST Procedures And Administration
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 3636
GST/HST Procedures And AdministrationGST/HST Procedures And Administration
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 3737
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 3838
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 3939
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 4040
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 4141
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
© 2010, Clarence Byrd Inc.© 2010, Clarence Byrd Inc. 4242