Ensuring you are complying with all your tax reporting requirements can be challenging at the best of times, but it can seem even more difficult when the rules — and your business — are constantly evolving.
In the case of sales tax, there have been several important changes recently in the way GST/HST and QST are administered, including British Columbia’s return to GST/PST and a rate adjustment to the Quebec sales tax.
It is important to keep abreast of the new rules and requirements, to manage your potential tax exposure and ensure you pay only what you’re required to, as well as enabling you to maximize any available input tax credits (ITCs) or refunds (ITRs). Both of these can help you recover tax paid on purchases related to your business, and many businesses count on them to help keep their tax bill down.
While sales tax regulations can differ depending on your type of business, they can often affect many parts of your daily operations, including taxable benefits on your payroll and cross-border transactions.
Following are the most common compliance issues for business owners, which can include registration requirements, maintaining proper documentation, filing elections on inter-company transactions, and ensuring you know the correct rules based on how your business is structured. Many of these issues apply equally for HST/GST and QST:
Forgetting to register Generally, if you make a taxable supply in Canada as part of your commercial activities, you must register for GST/HST (and QST). This is important if you are eligible to claim ITCs and ITRs on the tax you pay, but it also will put you in a good position when the Canada Revenue Agency or Revenue Quebec comes calling. In one case a company located outside Quebec had plans to make taxable supplies available to customers located in the province. The company was registered for GST/HST but didn’t think it had to register for QST because it had a single employee in the province contracting services out of his home. When the company realized its mistake, it acted quickly to register for QST and charge the tax to its customers, avoiding being liable for more than $500,000 in QST.
Inadequate documentation To avoid having your ITC or ITR claims denied or delayed, ensure your documentation meets the stated requirements. For example, the tax authorities may look at invoices and contracts to make sure the names are the same as that of the GST/HST registrant claiming the credits or refunds for goods and services. Real estate businesses should be especially wary of this, since a purchase invoice may be in the name of an agent or buying representative.
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