ax Ohio T Workshop KK
Ohio Tax Workshop KK Canadian Commodity Tax Update for U.S.-Based Companies Wednesday, January 29, 2014 2:00 p.m. to 3:00 p.m. Biographical Information Darryl Rankin, Director, Commodity Tax, DuCharme, McMillen & Associates Canada, Ltd. 7405 East Danbro Crescent, Suite 200, Mississauga, ON L5N 6P8 [email protected] 888-458-7829, ext. 1530 As a Director for DMA’s Canadian Commodity Tax practice, Darryl provides tax solutions for DMA’s clients. He focuses on GST, HST, PST, QST, payroll tax, fuel tax, and pensions. Darryl works with clients to provide cost recovery services and strategic tax planning recommendations. He also identifies potential tax exposure areas and offers solutions to mitigate tax liabilities. EXPERIENCE Darryl has more than 15 years’ experience providing consulting services to clients in both Canada and the United States. He has managed commodity tax recovery engagements for a variety of clients including large multi-national corporations, private enterprises and charitable organizations. Darryl has also represented clients on audit defense issues, government rulings, advisory, and compliance engagements. Prior to joining DMA, Darryl was the Corporate Tax Manager for one of Canada’s largest IT infrastructure companies. He was responsible for all Canadian tax planning and compliance including corporate tax, capital tax, and commodity tax. He was instrumental in implementing commodity tax planning opportunities to reduce cost as well as IT system changes to ensure commodity taxes were properly captured and recovered. Darryl was also the Commodity Tax Manager for one of Canada’s largest retailers, where he managed the commodity tax function to ensure compliance with all Federal and Provincial commodity tax statutes. He coordinated all Federal and Provincial commodity tax audits including negotiations with government representatives on contentious tax issues and assessments. EDUCATION/CREDENTIALS Darryl graduated from the University of Toronto with a Bachelor of Commerce degree and specialist in Economics. He has successfully attended numerous commodity tax courses and seminars with the Canadian Institute of Chartered Accountants (CICA), including their In-depth GST Course, In-depth PST Course, the annual Commodity Tax Symposium, and the Cross-Border GST/HST course. Darryl is a Certified General Accountant (CGA), and is a frequent speaker on Commodity Taxes at both DMA hosted Tax Events and industry sponsored events such as the Tax Executives Institute (TEI) and the Council on State Taxation (COST). CANADIAN COMMODITY TAX UPDATE FOR U.S. – BASED COMPANIES DARRYL K. RANKIN, CGA DIRECTOR, COMMODITY TAX NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 1 Overview of GST/HST Non-Resident Registration Requirements GST/HST Cross Border Issues Overview of Provincial Sales Tax Quebec Sales Tax Audit Issues 2 GST/HST OVERVIEW NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 3 GST/HST OVERVIEW U.S. Companies doing business in Canada, need to consider a number of issues including: How to structure their operations in Canada. Legal issues and requirements (ex. business license and registration). Corporate tax obligations including income tax, non‐resident withholding, payroll taxes etc. Requirement to register and collect applicable Commodity Taxes (sales taxes). NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 4 CANADIAN COMMODITY TAX RATES AT JUNE 1, 2013 Province Alberta British Columbia (3) Manitoba New Brunswick (1) Newfoundland/Labrador (1) Northwest Territories Nova Scotia (1) Nunavut Ontario (1) (3) Prince Edward Island (1)(2) Quebec Saskatchewan Yukon Notes: GST/HST Rate (1) 5 5 5 13 13 5 15 5 13 14 5 5 5 PST Rate 0 7 8 Harmonized Harmonized 0 Harmonized 0 Harmonized Harmonized 9.975 5 0 Combined Rate 5 12 12 13 13 5 15 5 13 14 14.975 10 5 (1) ‐ All taxable sales are subject to the GST and when destination is an HST province, HST as well. (2) ‐ PEI harmonized its provincial sales tax with the federal GST for a rate of 14% HST effective April 1, 2013. (3) ‐ Ontario and British Columbia harmonized with the GST on July 1, 2010. BC abolished the HST and has implemented a new BC PST rate of 7% effective April 1, 2013. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 5 GST/HST OVERVIEW 13% HST Canada 5% GST 7% PST 15% HST Yukon Territory 5% GST 5% GST 5% PST 5% GST 9.975% QST 5% GST 8% PST Northwest Territories Nunavut Newfoundland British Columbia Alberta Manitoba Saskat‐ chewan Quebec Ontario 14% HST NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. New Brunswick Prince Edward Nova Island Scotia 6 GST/HST OVERVIEW GST is a 5% Value‐Added Tax levied under the Excise Tax Act (ETA). Applies to most goods and services. Administered by the Canada Revenue Agency (CRA) A business who is registered for the GST collects tax on sales of its goods and services and then deducts the tax it pays on its inputs and either remits the difference or claims a refund. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 7 GST/HST OVERVIEW Harmonized Sales Tax (HST) is effectively the GST except at a higher rate to take into account a “Provincial Component” for those provinces that have harmonized their provincial sales tax with the Federal GST system. HST combines the 5% Federal GST with the applicable provincial component. Example: Ontario 13% HST (includes the 5% GST plus the 8% provincial component). Province can set the applicable Provincial component. Shown as a single tax. Current Harmonized provinces include: Ontario, Nova Scotia, New Brunswick, Newfoundland, Prince Edward Island Quebec is considered harmonized however not administered the same way as the other HST provinces NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 8 GST/HST OVERVIEW‐‐SUPPLIES GST/HST applies to “taxable supplies” made in Canada (collected by a registered vendor) Goods Real Property Intangibles Services Taxable supplies ‐ includes “zero‐rated” supplies Exempt supplies ‐ distinguish with zero‐rated NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 9 GST/HST OVERVIEW‐‐INPUT TAX CREDITS GST registrants may take a credit for GST paid or payable as an input tax credit (“ITC”) Only available if supply acquired or imported in course of “commercial activity” ITCs allow businesses/suppliers to recover GST paid Must be the recipient of the supply (person legally responsible to pay for the supply) Must meet the documentary requirements to support an ITC claim. Not available to business/suppliers who are involved in “exempt” activities Four year statute of limitations NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 10 GST/HST OVERVIEW‐‐INPUT TAX CREDITS HOW THE GST/HST OPERATES – Assume Ontario HST 13% Supplier Value of Sales Value of Purchase Value added HST collected HST recovered Manufacturer Wholesaler $50 13% HST remitted Rate of VAT Retailer Consumer $50 $70 $50 $20 $80 $70 $10 $120 $80 $40 $120 $0 $6.50 $0 $9.10 ($6.50) $10.40 ($9.10) $15.60 ($10.40) $15.60 $6.50 $2.60 $1.30 $5.20 $15.60 13% 13% 13% 13% 13% NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 11 GST/HST OVERVIEW‐‐RETURNS Input Tax Credits are netted against the GST/HST collected on the supply of goods and services. A GST Registrant can be in a “net remittance” or a “net refund” position Simplified GST/HST Return comparison: NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 12 GST/HST OVERVIEW SUMMARY For most registered businesses, GST/HST should not affect bottom line – Balance Sheet transactions only Generally, GST/HST is paid at every level and every transaction with no “exemption” certificate. Who bears the final result of the VAT? Individual consumer Sellers of exempt goods or services Unregistered business Registered business but for non‐business use Financial Institutions/MUSH sector (to a certain extent) NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 13 GST/HST NON‐RESIDENT REGISTRATION When is a business required to register for the GST/HST? A Canadian resident must register if they: Make taxable supplies in Canada Small supplier threshold: not required to register if supplies are less than $30,000 per year. As a general rule, the supply of personal property or a service in Canada by a non‐resident person is deemed to be made outside Canada. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 14 GST/HST NON‐RESIDENT REGISTRATION When is a business required to register for the GST/HST? A Non‐resident of Canada must register if they: Sell prescribed goods in Canada • Provide admission to an event in Canada Deemed to be a resident of Canada • Ex. Publications Ex. Have a permanent establishment in Canada Carry on business in Canada or “Nexus” NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 15 GST/HST NON‐RESIDENT REGISTRATION “Carry on Business” in Canada? Similar analysis to “Nexus”. Refer to GST/HST Policy Statement P‐051R2. There are no conclusive factors and the following 12 different factors are to be considered in determining whether a person carries on business in Canada: the place where agents or employees of the non‐resident are located; the place of delivery; the place of payment; the place where purchases are made or assets are acquired; the place from which transactions are solicited; the location of assets or an inventory of goods; NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 16 GST/HST NON‐RESIDENT REGISTRATION Factors continued: the place where the business contracts are made; the location of a bank account; the place where the non‐resident's name and business are listed in a directory; the location of a branch or office; the place where the service is performed; and the place of manufacture or production. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 17 GST/HST NON‐RESIDENT REGISTRATION In general CRA notes that a person must have a significant presence in Canada to be considered carrying on business CRA provides very little guidance on how to apply the factors 21 examples provided in the policy statement From the examples it becomes clear that a significant presence is not required. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 18 GST/HST NON‐RESIDENT REGISTRATION One example states that a non‐resident lessor who receives delivery of the leased asset in Canada and then provides the leased asset to the lessee in Canada will always be found to be carrying on business in Canada even if the lessor has no presence in Canada. Another example shows that the CRA will consider a non‐ resident who maintains inventory in Canada to be carrying on business in Canada if any portion of the inventory is sold and delivered in Canada. This will be the result even if the other 10 factors indicate no other presence in Canada. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 19 GST/HST NON‐RESIDENT REGISTRATION A non‐resident can voluntarily register for the GST/HST under certain conditions A non‐resident must provide security if they do not maintain a permanent establishment in Canada. A major benefit of voluntary registration for a non‐resident is the ability to claim input tax credits. (example travel expenses, importation, office supplies, etc.). However it also requires the non‐resident to collect GST/HST on all sales made available in Canada. Results in additional administration requirements. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 20 GST/HST‐‐CROSS BORDER ISSUES‐‐SCENARIO #1 “GST/HST application to non‐resident supplying goods in Canada” U.S. Company (USCO) non‐resident of Canada. Registered for GST/HST. Ships goods to customers in Ontario, Canada with Inco Terms: Delivered Duty Paid (DDP). Customers include both individuals and GST/HST registered businesses. On importation, USCO pays 5% GST to the Canada Border Services Agency (CBSA) as they caused the goods to be imported into Canada under the terms of sale. USCO Is the “importer of record” on the Canada Customs form B3. USCO invoices customers and collects 13% HST as the sale is made available in Canada (Ontario). NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 21 GST/HST‐‐CROSS BORDER ISSUES‐‐SCENARIO #1 USCO Collects 13% HST from its Canadian customers. USCO can claim an Input Tax Credit for the 5% GST paid at the border. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 22 GST/HST‐‐CROSS BORDER ISSUES‐‐SCENARIO #1 Canada CANCO (Registered) Tax application: CANCO claims ITC for tax charged by USCO Terms of Sale: DDP Title passes in CDA USA USCO (Registered) Tax application: USCO claims ITC for GST paid at border USCO collects/remits GST/HST on sale to CANCO NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 23 GST/HST‐‐CROSS BORDER ISSUES‐‐SCENARIO #2 “GST/HST flow through mechanism” U.S. Company (USCO) non‐resident of Canada. NOT Registered for GST/HST. Ships goods to customers in Ontario, Canada with Inco Terms: Delivered Duty Paid (DDP). Customers include both individuals and GST/HST registered businesses. On importation, U.S. Company pays 5% GST to the Canada Border Services Agency (CBSA) as they caused the goods to be imported into Canada under the terms of sale. USCO Is the “importer of record” on the Canada Customs form B3. USCO invoices its customers. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 24 GST/HST CROSS BORDER ISSUES‐‐SCENARIO #2 USCO does not collect 13% HST as they are not registered. Assuming they have no other business activity in Canada, they are not required to be registered. USCO must still pay 5% GST at the border to CBSA. Cannot claim a GST Input Tax Credit as they are not registered. Results in “trapped” GST on importation into Canada. USCO can “flow‐through” the GST (under section 180 of the ETA) to their customers assuming the customers are registered. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 25 GST/HST CROSS BORDER ISSUES‐‐SCENARIO #2 Canada CANCO (Registered) Terms of Sale: DDP Title passes in Canada USA USCO (Not‐registered) Solution Section 180 “Flow‐Through” USCO passes GST paid at border to CANCO USCO must provide adequate documentation to CANCO to claim ITC Issue: USCO pays GST on importation USCO cannot claim ITC Results in “trapped” GST NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 26 GST/HST CROSS BORDER ISSUES‐‐SCENARIO #3 “Drop Shipments” Goods are delivered in Canada on behalf of a non‐resident (USCO) who is not registered for the GST/HST. USCO is charged GST/HST on shipment of the goods to its Canadian customer. USCO cannot claim a GST/HST Input Tax Credit as they are not registered. Solution: use a drop shipment certificate to alleviate the tax charged by Canadian vendor to USCO for delivery of the goods in Canada. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 27 GST/HST CROSS BORDER ISSUES‐‐SCENARIO #3 Canada Canadian Subcontractor (GST registered) Ontario customer issues drop shipment certificate Goods shipped Customer issues drop shipment certificate to Subcontractor to alleviate GST being charged to USCO. USA USCO (Unregistered‐ nonresident) NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. Ontario Customer (GST registered) Conditions: USCO non‐resident and not registered. Subcontractor needs info confirming customer is resident and registered 28 GST/HST CROSS BORDER ISSUES‐‐SCENARIO #4 “GST Input Tax Credit claimed incorrectly by CANCO” USCO sells direct to a Canadian Customer. USCO not registered so does not charge/collect GST/HST on invoice to Canadian customer. CANCO imports the goods on behalf of USCO and acts as importer of record. CANCO claims Input Tax Credit for the GST paid on importation. CANCO is not entitled to ITC. Did not cause the goods to be imported into Canada. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 29 GST/HST CROSS BORDER ISSUES‐‐SCENARIO #4 Canada Canadian Customer (GST registered) CANCO is “importer of record” on customs B3 form. However, they are not the actual importer. USCO caused the goods to be imported into Canada. CANCO pays GST on importation CANCO not entitled to ITC USA CANCO (sub of USCO) USCO (Unregistered‐ nonresident) NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 30 PROVINCIAL SALES TAX (PST) OVERVIEW PST is a Single Stage tax PST applies to sales of “tangible personal property” “TPP” or physical goods such as office equipment, furniture, office supplies and vehicles. Generally, PST does not apply to most services. Services that are taxable for PST purposes include labour provided to TPP, telecommunication services, and maintenance/warranty related to TPP. PST is not recoverable like a VAT. There are exemptions for resale and specified uses (ex. Manufacturing). This results in PST “embedded” in the supply chain resulting in higher costs for consumers. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 31 DIFFERENCE BETWEEN PST AND GST/HST Primary Industry Manufacturer Wholesaler Retailer PST (sales/use) PST is charged at various stages of the supply chain resulting in embedded tax Cost to Customer GST/HST GST is refunded at various stages of the supply chain eliminating embedded tax Total Cost to Customer GST/HST Refund NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 32 PROVINCIAL SALES TAX (PST) OVERVIEW With the implementation of the HST in Ontario and Prince Edward Island, and the BC “de‐harmonization” 3 provinces maintain a traditional PST tax: Saskatchewan 5% Manitoba 8% British Columbia 7% PST taxes are charged in addition to the 5% GST. All 3 provinces have different registration requirements. All 3 provinces maintain various forms of exemptions (ex. resale, mfg, other) NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 33 QUEBEC SALES TAX Quebec Sales Tax (QST) harmonized with the Federal GST. Does not involve the implementation of a single tax (as in BC, Ontario and PEI). Still required to file two separate returns. Quebec Sales Tax Act will continue to apply. GST and QST will continue to be shown separately on invoices. Effective date is January 1, 2013. A QST registrant must collect QST on all sales made in Quebec. Can claim Input Tax Refunds for QST paid on inputs (subject to restrictions). Remit the difference or claim a refund. Same rules as the GST/HST. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 34 AUDIT ISSUES The auditors are coming! All previous PST auditors employed by Ontario have been “rehired” by the Canada Revenue Agency (CRA). Auditors will want to ensure businesses are following the new rules and transition to HST. They are looking for additional revenues. U.S. corporations who are registered for GST/HST are routinely audited to ensure compliance. They are an easy target and often not in compliance. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 35 AUDIT ISSUES Failure to collect GST/HST Place of Supply issues Inadequate documentation to demonstrate delivery outside of Canada for zero‐rating purposes Non‐residents (who are GST registered) who make supplies outside Canada to Canadian customers and difficulty in demonstrating the place of supply • Inco Terms • Purchase Order • Terms of sale/agreement • Customs documentation/B3 NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 36 AUDIT ISSUES Current DMA client recently audited by CRA and assessed $4M Facts U.S. company registered for GST Claimed GST Input Tax Credits on importation into Canada Majority of sales have terms where title passes to Canadian customer in the U.S. Some Canadian sales have terms where title passes to Canadian customer at customers location in Canada NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 37 AUDIT ISSUES Current DMA client recently audited by CRA and assessed $4M Issue Whether U.S. company entitled to ITC on importation Non‐collection of GST/HST on sales made in Canada Lack of documentation provided to auditor to support ITCs on importation Poor communication between company and auditor 4 different point of contacts dealt with auditor over an 18 month period Auditor grew frustrated and denied all input tax credits for entire 3 year period Notice of Assessment issued Only recourse is the appeal process….not the approach you want to take! NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 38 AUDIT ISSUES GST/HST Input Tax Credits (ITCs) Must meet the requirements of Subsection 169(4) Refer to the Input Tax Credit Information (GST/HST) Regulations for information on what is required to support an ITC claim. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 39 AUDIT ISSUES GST/HST Input Tax Credits (ITCs) CRA denying ITCs on the basis that the person claiming the ITC was not the recipient of the supply • Ex. CDN Sub Co. claiming an ITC as Importer of Record for US Parent Co. importing goods into Canada. • Ex. US Parent Co. incurs GST/HST and “flows ITC” to registered CDN Sub Co. • ITCs claimed by the wrong entity in a related group CRA denying ITC’s for not obtaining sufficient documentation to support ITCs. • Ex. Payments to vendors where no invoice is provided (commission payments). • Ex. Debit payments where debit note does not contain sufficient information. NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 40 AUDIT ISSUES GST/HST Input Tax Credits (ITCs) Not validating the GST/HST Registration # of vendors • A number of court cases • Comptronic Computer, Systematix • Must validate GST/HST Registration # as part of meeting the documentary requirements • GST/HST Registry website—manual process to validate! • Need correct legal name of vendor • Require the 9 digit BN # • How often to check a vendor’s GST/HST #? NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 41 CONTACT INFORMATION Darryl Rankin Director, Commodity Tax Toronto, ON (800) 309‐2110, ext. 1530 [email protected] NORTH AMERICA’S TRUSTED CHOICE FOR CORPORATE TAX SOLUTIONS DuCharme, McMillen & Associates, Inc. All rights reserved. Reproduction of this document or any portion thereof without written consent is prohibited. 42
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