Chapter TwentyOne Goods And Services Tax GST Transaction

Transaction Tax Concepts Manufacturer Wholesaler Retailer Customer © 2009, Clarence Byrd Inc. 2

Single Stage Transaction Tax – Retail Sales Tax § 5% ($50, 000) = $2,

Multi-Stage Transaction Tax VAT § § § Manufacturer = 5% ($10, 000) $ 500

Multi-Stage Transaction Tax – GST § Manufacturer 5%($10, 000) § Wholesaler – 5%($25, 000)

Liability For GST ITA 165(1) -. . . every recipient of a taxable supply

Liability For GST § The liability is on the purchaser of the goods and

The Concept Of Supply § ETA 123 – “Supply” means the provision of property

The Concept Of Supply § Taxable Supplies – Supplies made in the course of

The Concept Of Supply § Commercial Activity – In general: business carried on by

Supply Categories § Fully Taxable Supplies – Full Tax And ITCs – Examples §

Supply Categories § Zero-Rated Supplies – Tax At 0%, Full ITCs – Examples §

Supply Categories § Exempt Supplies – No Tax, No ITCs – Examples § Health

Applying the GST Rates § Basic approach – Rate is applied to consideration received

Applying the GST Rates § On Trade-Ins – GST on Net Amount Example: An

Collection And Remittance Of GST § Liability is on recipient of supply. § Provider

Requirement To Register § A person is required to register if the person is

Small Supplier Exemption § Small Supplier Threshold – <$30, 000 per year in taxable

Small Supplier Exemption § Last 4 Calendar Quarters Test – Over $30, 000 on

Input Tax Credits § Costs Other Than Capital Costs – No Matching – Prorated

Input Tax Credits § Capital Costs – No Matching Or Allocation – Real Property:

Input Tax Credits § Restrictions On Certain Costs – Club Dues – 50% Meals

GST And Accounting § No Matching § No Allocation (Amortization, etc. ) § Some

Example § GAAP Income Statement Sales Cost Of Sales Amortization Expense Salaries Other Expenses

Example (Continued) § Other Information: § Capital Expenditures - $2, 000 for a building

Solution To Example Sales (5%)($5, 000) Purchases (5%)($4, 500, 000) Other Expenses (5%)($200, 000)

Relief For Small Business § Quick Method – – – <$200, 000 Taxable Sales

Example § Annual filing retail store has annual sales of $125, 000, resulting in

Relief For Small Business § Simplified ITC Accounting – GST On Sales – Regular

GST Procedures And Administration § Liability – Revenues when customer is invoiced – Input

GST Procedures And Administration § Taxation Year – Will have fiscal year – Usually

GST Procedures And Administration § Filing – Taxable sales > $6, 000 § §

GST Procedures And Administration § Payment and Interest – Payment is due when returns

GST Procedures And Administration § Appeals – Informal procedures – Notice of objection §

Employee/Partner GST Rebate § Employees and partners are usually nonregistrants § Employees and partners

Employee/Partner GST Rebate § Calculation – Multiply eligible expenses by 5/105 – Rebate is

New Housing Rebate § GST is payable at 5 percent § Rebate available equal

New Housing Rebate Reduction [A][($450, 000 – B) ÷ $100, 000] Where: A =

New Housing Rebate - Example On July 1, 2009, Gary and May Lartch acquire

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Chapter Twenty-One Goods And Services Tax (GST)

Multi-Stage Transaction Tax – GST § Manufacturer 5%($10, 000) § Wholesaler – 5%($25, 000) – 5%($10, 000) ( § Retailer – 5%($50, 000) – 5%($25, 000) § Total $ 500 $1, 250 500) 750 $2, 500 ( 1, 250) 1, 250 $2, 500 © 2009, Clarence Byrd Inc. 5

Liability For GST ITA 165(1) -. . . every recipient of a taxable supply made in Canada shall pay to her majesty in right of Canada, tax in respect of the supply calculated at the rate of 5% on the value of the consideration for the supply. © 2009, Clarence Byrd Inc. 6

The Concept Of Supply § ETA 123 – “Supply” means the provision of property or a service in any manner, including sale, transfer, barter, exchange license, rental, lease, gift, or disposition. © 2009, Clarence Byrd Inc. 8

The Concept Of Supply § Taxable Supplies – Supplies made in the course of commercial activity § Includes – Fully taxable at 5% – Zero-rated § taxable at 0% § vendor gets input tax credits © 2009, Clarence Byrd Inc. 9

The Concept Of Supply § Commercial Activity – In general: business carried on by a person, a personal trust, or a partnership made up of individuals – Exclusions § no expectation of profit § exempt supplies § employment services © 2009, Clarence Byrd Inc. 10

Applying the GST Rates § Basic approach – Rate is applied to consideration received – Includes all non-refundable federal taxes – Provincial sales taxes § Quebec and PEI include GST in base § Other Provinces (non-HST) do not © 2009, Clarence Byrd Inc. 14

Applying the GST Rates § On Trade-Ins – GST 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 © 2009, Clarence Byrd Inc. 15

Input Tax Credits § Capital Costs – No Matching Or Allocation – Real Property: Pro Rate Based On Commercial Usage – Other: § > 50% Commercial – 100% § ≤ 50% Commercial - Nil © 2009, Clarence Byrd Inc. 21

Example § GAAP Income Statement Sales Cost Of Sales Amortization Expense Salaries Other Expenses Total © 2009, Clarence Byrd Inc. $6, 700, 000 ( 4, 200, 000) ( 1, 400, 000) ( 500, 000) ( 200, 000) $ 400, 000 24

Example (Continued) § Other Information: § Capital Expenditures - $2, 000 for a building (40% commercial) - $1, 000 for equipment (70% commercial) § Purchases of goods for resale were $4, 500, 000 § Other Expenses of $200, 000, related to fully taxable supplies § $5, 000 of sales were fully taxable, the remainder were exempt § Ignore provincial sales taxes © 2009, Clarence Byrd Inc. 25

Solution To Example Sales (5%)($5, 000) Purchases (5%)($4, 500, 000) Other Expenses (5%)($200, 000) Building (5%)($2, 000)(40%) Equipment (5%)($1, 000)(100%) GST Payable (Refund) © 2009, Clarence Byrd Inc. $250, 000 ( 225, 000) ( 10, 000) ( 40, 000) ( 50, 000) ($ 75, 000) 26

Relief For Small Business § Quick Method – – – <$200, 000 Taxable Sales Collect Usual 5% Don’t Track ITCs, except for capital expenditures – Apply Given % To GST Inclusive Sales § Service – 2. 6%/3. 6% § Retail – 0. 8%/1. 8% © 2009, Clarence Byrd Inc. 27

Example § Annual filing retail store has annual sales of $125, 000, resulting in GST included sales of $131, 250. In addition, there are $20, 000 in capital expenditures. – $30, 000 @ 0. 8% $ 240 – $101, 250 @ 1. 8% – Capital Expenditures (5%)($20, 000) – GST Payable © 2009, Clarence Byrd Inc. 1, 823 ( 1, 000) $1, 063 28

Relief For Small Business § Simplified ITC Accounting – GST On Sales – Regular Procedures – Input tax credits based on 5/105 multiplier applied to most purchases – Excluded from 5/105 calculation: § Capital expenditures for real property § Purchases of zero-rated supplies § Purchases from non-registrants § Cost not eligible for input tax credits (e. g. , 50 percent of meals) – Can track capital expenditures on real property © 2009, Clarence Byrd Inc. 29

GST Procedures And Administration § Taxation Year – Will have fiscal year – Usually the same as income tax fiscal year § If non-calendar income tax year; § Can use calendar year for GST © 2009, Clarence Byrd Inc. 31

GST Procedures And Administration § Filing – Taxable sales > $6, 000 § § Monthly Filing Returns one month after the end of the filing period – Taxable sales between $1, 500, 001 and $5, 999, 000 § Quarterly filing § Returns one month after the end of the filing period – Taxable sales < $1, 500, 001 § Annual filing § Three months after the end of the filing period © 2009, Clarence Byrd Inc. 32

GST Procedures And Administration § Payment and Interest – Payment is due when returns are filed – Non-deductible interest at prescribed rate plus 4 percent (2 percent on amounts owing to the taxpayer) – Late filing penalty of one-quarter of one percent per month, for a maximum of 12 months © 2009, Clarence Byrd Inc. 33

GST Procedures And Administration § Appeals – Informal procedures – Notice of objection § 90 days after the date on the notice of objection – Tax Court Of Canada – Federal Court Of Appeals – Supreme Court Of Canada © 2009, Clarence Byrd Inc. 34

Employee/Partner GST Rebate § Employees and partners are usually nonregistrants § Employees and partners have deductible expenses on which GST is paid § The rebate allows them to recover this GST – Must be employee or partner of an employer or partnership that is a GST registrant – Also government employees – Expenses must be non-reimbursed © 2009, Clarence Byrd Inc. 35

Employee/Partner GST Rebate § Calculation – Multiply eligible expenses by 5/105 – Rebate is a refund of GST paid on costs that were deducted for income tax purposes – Rebate is added to income or deducted from UCC in the year it is received © 2009, Clarence Byrd Inc. 36

New Housing Rebate Reduction [A][($450, 000 – B) ÷ $100, 000] Where: A = The lesser of 36 percent of the GST paid and $6, 300 [(5%)(36%)($350, 000)] B = The greater of $350, 000 and the cost of the home © 2009, Clarence Byrd Inc. 38

New Housing Rebate - Example On July 1, 2009, Gary and May Lartch acquire a new home 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 © 2009, Clarence Byrd Inc. 39