As fall arrives and the rain must come after a hot dry summer, we thought it would be a good time to give you some tips related to the Goods & Services Tax (“GST”).
Recent GST Audit Activity
Many of our clients are being asked by Canada Revenue Agency (“CRA”) to provide documents to support amounts claimed as GST Input Tax Credits (“ITCs”). The CRA’s “GST/HST Refund Integrity Unit” is sending GST registrants requests for detailed information and documentation to support amounts claimed as GST ITCs. The requests usually focus on documentation, and the CRA wants to see invoices from suppliers to support the amount claimed as an ITC.
The CRA is reviewing the documentation carefully, and is denying ITC claims if the following information is not included in a supplier invoice or contract to support an ITC claim:
If you are issued an invoice that omits any of this information, you should consider asking the supplier to correct any omissions and re-issue their invoice before you pay the GST portion. Doing this will reduce the risk that the CRA will deny the ITC and reduce your GST refund (or increase your GST payable, as the case may be).
Confirming GST Registration Status of Suppliers
If you want to confirm that a supplier who has charged you GST is actually registered with the CRA for GST/HST purposes, you can use the GST/HST Registry (www.cra-arc.gc.ca/gsthstregistry). The Registry lets you enter the GST number, supplier name, and invoice date to confirm that the supplier is registered on the invoice date. You can also print a copy of the result for your records.
If the Registry search shows that the supplier is not registered, then they probably should not be charging you GST and you are probably not entitled to claim an ITC when they charge you this GST. If a supplier who is not registered charges you GST on an invoice, you should advise the supplier that you cannot pay the GST charged because they are not a registrant.
If the Registry search result in “insufficient information” as a response, then it is likely because the GST number and name entered do not match CRA’s records closely enough. This might happen because the legal name of the supplier (i.e. the name under which they are registered for GST purposes) is different from their trade name. If your GST registry search results in an “insufficient information” or “not registered” response, you should defer paying the GST and ask the supplier to re-issue the invoice using the name of the GST registrant and the correct GST number. Once you have that, and confirm that it is correct using the GST Registry, the GST can be paid and the ITC claimed.
Remember that a quick check when you receive an invoice could save you significant delays when you claim your ITCs, so it is worth your time to make sure suppliers are registrants and that their invoices have the information CRA wants to allow your ITC claim. You should also make sure your own invoices contain the correct information to save your customers any problems with the CRA.
GST on Deposits
GST is not payable on a deposit; the GST is collected when the actual purchase becomes payable and the deposit is applied against that purchase price.
If a supplier charges you GST on a deposit, you should ask them to re-issue the correspondence without the GST and you should not pay the GST amount on the deposit (if the supplier thinks that they need to charge GST on the deposit, you can refer them to CRA’s web page at http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-e.html#P1556_143158, which explains that GST is not collected on deposits.
The “Nil Consideration” Election for GST Purposes
The “nil consideration” election is an election that allows certain persons to elect to make supplies for nil consideration for GST purposes. The advantage to the election is that “closely related” corporations and partnerships can treat supplies of goods and services as being made for nil consideration; this avoids the need for one party to collect and remit GST while the other party makes an ITC claim and waits for the refund.
The election is only available to “closely related” corporations and partnerships. Eligibility for the nil consideration election is complex; if you are relying on such an election, please contact us to discuss the eligibility requirements and the method of filing the election.
When does the Election Need to be Filed?
In the past, the election for nil consideration did not need to be filed with CRA. It was sufficient to simply keep the election in your records, and to show the election only if CRA asked to see it.
However, starting in 2015, registrants who are relying on the nil consideration election must file form RC4616, Election or Revocation of an Election for Closely Related Corporations and/or Canadian Partnerships to Treat Certain Taxable Supplies as Having Been Made for Nil Consideration for GST/HST Purposes, if they are relying on the nil consideration election.
For elections that were in effect before 2015, an election will have to be filed after 2014 and before January 1, 2016 (unless the deadline is extended).
Please contact us for assistance.
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