GST/HST

by Jeff Kirshen

Assigning Property and the GST/HST Implications

Assigning a property is selling the property before you even own it. So you are just selling the contract which contains the right to close on the property. You purchased a property pre-construction condominium with a builder, signed the contract, gave your deposit cheques, and then sold the property before gaining title. For the assignor (the person selling the property), there can be serious tax implications.

 

Assigning a Property and the CRA

Upon detecting an assignment, the Canada Revenue Agency (CRA) will decide whether or not you should be considered a “builder” of the property. The test the CRA uses is subjective: they try to determine what your intention were when you purchased the property and why you’re selling. They ask questions like:

• Did the seller ever intend to live there; and
• Was this transaction intended to generate profit?

More often than not, in our experience the CRA considers assignors builders if they never took occupancy of the property. And if you are found to be a builder by the CRA, they hold you liable for HST on the sale.

 

Assigning a Property and the GST/HST Implications

If the CRA considers you to be a builder, they expect you to charge and remit sales tax (GST/HST) on the full sales price. The problem becomes almost no one does this on the original sale. Only once CRA has come and audited do they determine you to be a builder, and rule that GST/HST should have been charged.

Because this normally happens after the fact, most “builders” are unable to collect the GST/HST from the purchaser, and are now liable for the amount owing plus penalties and interest. This is typically where most people will file notices of objection, arguing that they are not “builders” and should not be responsible for GST/HST.

 

Additionally, once the CRA comes and audits you for one sale, they will review your entire history of buying and selling properties to see if they can determine that you are selling property as a business, and are therefore running a property selling business. They would further audit you to see if any use of the principal residence exemption was correct, if you are entitled to capital gains, or if you should have been claiming business income. Again, the issue with CRA determining that you should be claiming business income is that there are GST/HST implications as above.

 

If you have recently assigned a property, or have been assessed for the assignment or sale of a home/property in the course of a business, call us today! We can help!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.

by Jeff Kirshen

Tax Requirements for the Gig Economy in Canada

The Canada Revenue Agency (the “CRA”) requires all taxpayers to file income tax returns every year. Since Uber, and other similar companies, have arrived on the scene there have been questions about the tax implications of working for a company in the gig economy like Uber.

 

Status of Uber Drivers 

The CRA considers Uber drivers to be self-employed, or independent contractors. As far as the ride-sharing companies are concerned, you are the owner of a separate business that it uses to provide driving services.

So, drivers follow similar rules to all other self-employed individuals. Importantly, this means that Uber drivers do not receive T4 slips from Uber. Rather, Uber drivers are responsible for paying their income tax by the regular tax filing deadline. This is the case because Uber does not deduct taxes from the income made by Uber drivers throughout the taxation year.

 

Tax Structure of Working in the Gig Economy

Beginning July 1, 2017, for Uber drivers, federal and/or provincial taxes are added to fares when clients book a ride. Thus, drivers must register for a GST/HST account within 30 days of their first trip. For drivers in Quebec, you must also have a GST number before you can begin providing services to clients.

The “Small Supplier” exception was forced to change upon the creation of Uber jobs. Before July 1, 2017, only drivers who made $30,000 per year or more had to charge and remit GST/HST. That said, because of Uber, Lyft, and other similar companies, the CRA implemented new rules. The CRA was forced to amend/change the GST/HST definition of “taxi business” in the Excise Tax Act.

So, Uber drivers must register for a GST/HST account, regardless of income. Uber drivers must also charge and collect GST/HST for all fares, report these amounts on their income tax return, and remit the GST/HST charged to the CRA.

In Quebec, Uber collects and remits QST and GST for drivers. In the rest of Canada, Uber collects GST/HST automatically from clients and transfers it to the drivers weekly. Thus, drivers must remit these amounts to the CRA on their own. Uber provides its drivers with their tax information in their “Uber profile”. Tax summaries are available in the app’s profile which provides information on total earnings and other tax information.

 

Deducting Business Expenses in the Gig Economy

Since drivers are independent business owners, most, if not all, money spent on deriving income from the ride-sharing services can be considered tax deductible expenses. The significant expense for drivers is the actual use of the vehicle. Uber drivers can deduct the actual expenses of operating a vehicle for business including gas, oil, insurance, maintenance, repairs, depreciation of the car or lease payments.

If your vehicle is used for ride-sharing purposes and personal transportation, then you should be careful only deduct the portion of your expenses that apply to business use. More importantly, whatever deduction you claim, it is imperative that you keep thorough records to support your claims. The CRA is always liable to scrutinize taxpayer return filings, so you should keep receipts, mileage logbooks, or any other documentation that support the expenses you are claiming as deductions.

 

If you have any questions about tax requirements for Uber drivers or the gig economy in Canada or any of its Provinces, please give us a call or set up a consultation online!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.  

by Jeff Kirshen

What is HST in Canada?

The harmonized sales tax (“HST”) is a consumption tax in Canada and it combines the goods and services tax (“GST”) and provincial sales tax (“PST”) . It is most often used in provinces where both the federal goods and services tax  and the regional provincial sales tax have been combined into a single value added sales tax. HST resulted from attempts by the federal government to pressure provinces to abandon their individual provincial sales tax systems in favour of a blended tax that they argued would improve the competitiveness of Canadian businesses across the country.

Due to opposition from some provinces, the HST has not been universally implemented, and some provinces still charge and administer their own provincial taxes in addition to GST.

 

Where does HST apply in Canada?

The HST is in effect in five of the 10 Canadian provinces. These include New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island. HST is collected by the Canada Revenue Agency (“CRA”). Once collected, the CRA remits the appropriate amounts to the participating provinces.

HST may differ across the five provinces mentioned above, as each province establishes its own PST rates within the HST calculation. If the province does not enact HST collection, the CRA will only collect 5% GST.

 

 

Businesses and the HST

Businesses that operate in any of the provinces that charge HST have the responsibility to charge, collect and remit HST as required by the tax provisions. Similar to exceptions for GST, there is a “Small Supplier” exception for businesses that charge HST in the appropriate provinces. If a small business makes less than $30,000.00 annually, they are not required to register for GST/HST. That said, businesses should consider registering for GST/HST regardless because it allows them to claim Input Tax Credits on the goods and services they consume during the course of conducting their business. Small business owners that are eligible for exception should weight the pros and cons of registering for GST/HST before deciding not to.

If businesses are selling goods and services out-of-province or out-of-country, they need to ensure they are charging the appropriate tax. Due to the different tax regimes amongst the provinces, this can prove to be somewhat complicated at times. The main rule is that businesses must charge either HST or GST/PST according to the destinations provincial or territorial taxation rates. For example, if the business resides in Nova Scotia, but they are shipping the goods to Ontario, they would charge an HST rate of 13% instead of 15%. If the business resides in Saskatchewan, but they are shipping goods to Alberta, then they would charge 5% GST and no PST.

Important to note, HST/GST/PST does not apply to sales of goods and services to jurisdictions outside of Canada. Interestingly, this rule applies to Canadian businesses that have their destination address outside of Canada.

 

Canada HST Rates

For a full breakdown of GST/HST rates in Canada and its provinces, please click here.

 

Finally, as a side note, the federal, and some provincial, governments issued a GST/HST credit to help compensate low-income individuals who are negatively affected by the GST/HST. Eligibility for the GST/HST credit is determined from the previous year’s tax return. If a taxpayer is eligible, they receive a tax-free quarterly payment intended to offset all or part of the GST/HST paid in the previous taxation year.

 

If you have any questions about HST in Canada or any of its Provinces, or if you have questions regarding setting up your business’ GST/HST remittance structure, please give us a call or set up a consultation online!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.  

by Jeff Kirshen

Uber Drivers and Canadian Income Tax

Uber drivers are considered self-employed in Canada, otherwise known as an independent contractor. As such, Uber drivers must keep records of the money they receive from Uber, and all of their expenses so that they may prepare and file proper income tax returns each year. Because Uber drivers are independent contractors, they will not be issued a T4 slip.

When preparing and filing their tax returns, Uber drivers must complete a T2125. This form is known as a statement of business activities. It lists the income earned, and breaks down all of the expenses incurred in that year.

 

What Documentation will I need to Complete my Income Tax Return?

To complete your return, you will need to gather information with respect to your income, your expenses, and mileage driven. Furthermore, you will also require:

• Your Annual Tax Summary from Uber (found at: partners.uber.com);
• Receipts, bills and statements for all tax deductible expenses;
• Your vehicle mileage from the beginning of the year, the end of the year, and separated between personal and business kilometres driven;
• Your Social Insurance Number; and
• Any other tax documents and slips related to any other employment you may have.

 

What Expenses may I deduct?

You are able to deduct certain business expenses from your income to lower the overall amount of tax you will pay. Some examples include:

• Mileage;
• Maintenance expenses (gas, oil, windshield washer fluid, new tires, tune-ups, etc.);
• Car washes;
• Vehicle insurance;
• Transponder for toll roads, tolls or parking costs;
• Cell phone expenses;
• Uber booking fees;
• Freebies for riders (water, candy, etc.);
• Cell phone mounts;
• Dash-cams;
• Phone accessories (chargers, auxiliary cords and hands free headsets);
• Car loan interest; and
• Accountant or bookkeeping fees.

 

When are my Tax Returns Due?

Self-employed persons must file their returns by June 15 of each year.

 

I Filed my Taxes but Cannot afford to Pay CRA the Money I Owe

If you are unable to pay the taxes you owe, you are still better off filing the tax return rather than holding onto it. If you do not file, you will be hit with penalties, and then interest will be charged on the original amount you owe plus the penalties. Once you have filed your return, the CRA will expect you to pay the balance in full. If you cannot, the CRA will expect you to enter into a payment plan where you are likely paying an amount monthly towards your tax bill. If you are having trouble negotiating a collections repayment plan, call us today because we can help.

 

Uber drivers are currently being targeted by the Canada Revenue Agency because recently, the CRA received a vast amount of information from Uber. The information shows amounts paid to independent contractors, which the CRA then matches up to ensure the Uber driver reported the correct amount of income. If the numbers do not match up, an audit is commenced. If you are being audited, or need some assistance with your taxes, call us today!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.  

by Jeff Kirshen

What is HST in Ontario?

HST stands for “harmonized sales tax”. A harmonized sales tax is otherwise known as a consumption tax, which is a tax levied on spending (think of goods and services). Typically, this tax is used in provinces where both the federal goods and services tax (GST) and the regional provincial sales tax (PST) are combined to become a single “value added” sales tax.

 

What is HST in Ontario?

In Ontario, the current rate of HST is 13%.

 

What Goods and Services does HST apply to in Ontario?

The following are some examples of taxable supplies:

• Sales of new housing;
• Sales and rentals of commercial real property;
• Sales and leases of automobiles;
• Car repairs;
• Clothing and footwear;
• Legal and accounting services; and
• Hotel accommodation.

 

Zero-Rated Supplies

Some supplies are considered to be zero-rated – meaning that HST applies at a rate of 0%. Therefore, while GST/HST wouldn’t be charged on these supplies, you would still be able to potentially claim input tax credits for the GST/HST paid or payable on either services or property acquired in order to provide these supplies.

The following are some examples of zero-rated supplies:

• Basic groceries, such as milk, bread, and vegetables;
• Most farm livestock;
• Most fishery products, such as fish for human consumption;
• Prescription drugs and drug-dispensing services;
• Certain medical devices, such as hearing aids and artificial teeth; and
• Feminine hygiene products.

For more examples, please see the CRA website found here.

 

Are there Exemptions to HST in Ontario?

There are various items that are typically exempt from HST. This means that no GST/HST applies to them. While this aspect is similar to a zero-rated supply, the difference with these items is that you are generally not entitled to claim input tax credits on property and services acquired to provide these supplies.

Below are some examples of exempt supplies:

• Resale of an existing home (renovations are taxable, however);
• Books;
• Household goods, such as children’s clothing and shoes, car seats, diapers;
• Legal aid services;
• Child care services, where the primary purpose is to provide care and supervision to children 14 years of age or under for periods of less than 24 hours per day;
• Long-term rentals of residential accommodation (of one month or more) and residential condominium fees;
• Feminine hygiene products;
• Music lessons; and
• Many educational services, such as tutoring services made to an individual in a course that follows a curriculum designated by a school authority.

 

For more information on the harmonized sales tax and how it might impact your spending and potential input tax credits that you may be eligible for, contact us for more information!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer. 

by Jeff Kirshen

What is the Marginal Tax Rate?

The marginal tax rate is the percentage of tax you will pay, which is based on the amount of income you earn. The more money you make, the more tax you are expected to pay. This approach is otherwise known as the marginal tax rate. More specifically, the marginal tax rate, is the amount of tax incurred on each additional dollar of income.

 

How is the Marginal Tax Rate Applied?

Under a marginal tax rate, taxpayers are divided into tax brackets, which determine the particular rate of tax applied to the taxable income. The marginal tax bracket where a taxpayer’s income applies to does not determine how the entire income is taxed. Instead, income is taxed on a progressive system. This means the following for 2019:

 

Taxable Income	Federal Income Tax Rate
$47,630 and below	15%
$47,630 up to $95,259	20.5%
$95,259 up to $147,667	26%
$147,667 to $210,371	29%
Over $210,371	33%

 

Note: In order to determine the total tax rate paid in your province, you must combine the marginal tax rates for your province and the federal tax rate.

 

Example:

You are a resident in Ontario, and your gross taxable income is $50,000. To calculate your federal tax rate, you would:

• Pay 15% on the amount up to $47,630. This would equal $7,144.50; and
• Pay 20.5% on the amount between $47,630 and $95,259. This would equal $485.85.

This would make your total federal tax $7,630.35. Next, you would have to add this figure to the provincial tax rate. The Ontario rates for 2019 are as follows:

 

Taxable Income	Ontario Income Tax Rate
$43,906 and below	5.05%
$43,906 up to $87,813	9.15%
$87,813 up to $150,000	11.16%
$150,000 up to $220,000	12.16%
Over $220,000	13.16%

 

Following the same principles from above, your total provincial tax payable would equal $277.50. Taken together, on your $50,000 gross taxable income, you will pay $7,907.84 in tax.

 

Tax Planning and the Marginal Tax Rate

If you know the tax bracket that you are in, this will allow you to make well-informed decisions on when, how, and which deductions you are able to claim. It can help determine whether you or your spouse should claim certain amounts or credits, whether it is an appropriate time to withdraw from your retirement savings accounts, and even whether it might be worth making that extra dollar from a promotion.

 

If you wish to take full advantage of the tax bracket you are in, and ensure that you do not miss out on, or sacrifice any benefits you are eligible for, contact us and we would be happy to help you strategize and determine the best course of action moving forward!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.

by Jeff Kirshen

CRA Penalties and Interest

The Canada Revenue Agency (“CRA”) can charge interest and penalties for a variety of reasons. Perhaps more worrisome is the alarming rate that penalties and interest can accrue at thereafter. Interest and penalties can easily accumulate to amounts greater than the taxpayer’s original balance owing. Below is a breakdown of common penalties and interest that the CRA may charge to unpaid balances.

 

CRA Arrears Interest

Where the taxpayer has a balance with the CRA, interest begins accruing on that balance from the filing due date. Interest is compounded daily at the CRA’s prescribed interest rate. The interest rate changes every three months; most recently the interest rate charged on overdue taxes is 6%. In addition to any tax liabilities outstanding, interest is also charged on any penalties on the taxpayer’s account.

 

CRA Late Filing Penalties

The CRA charges Late Filing Penalties when a taxpayer owes taxes and files his or her income tax return late. Currently, the CRA charges 5% of the balance owing + 1% of the balance owing for each month late to a maximum of 12 months.

Repeated late filing can lead to a penalty increase of up to 10% of the balance owing + 2% of the balance owing for each month late to a maximum of 20 months.

 

CRA Repeated Failure to Report Income Penalty

This penalty occurs where a taxpayer fails to declare income on a tax return, and also failed to report income in any of the previous three years’ returns.

A “Failure to Deduct” penalty of 10% can be applied to the amount of CPP, EI or income tax that you did not deduct. If assessed with this penalty more than once in a calendar year, the CRA will apply a 20% penalty for second or later failures due to gross negligence.

 

CRA False Statements or Omissions Penalties

The CRA can also charge penalties where it believes that false statements or omissions occurred. Subsection 163(2), “False Statements or Omissions”, enables the CRA to charge a penalty of 50% of the unpaid tax on the omitted income.

 

CRA Penalties on Trust Funds: GST/HST and Payroll Accounts

CRA imposes other penalties on the failure to remit and pay off trust funds. More information about penalties applicable to GST/HST accounts can be found here.

Where late remitting of a business’ payroll account occurs, the CRA can impose late remitting penalties. More information regarding late remitting penalties can be found here.

 

What Can Be Done About CRA Penalties and Interest?

It is best to file and pay your taxes on time. However, the reality is that this ideal standard is not always possible. In such cases, there are options to seek relief from unfair charges. One such avenue is through the CRA’s Taxpayer Relief Division. We previously wrote on the topic of Taxpayer Relief here.

While each taxpayer has the right to request taxpayer relief, the CRA’s decision to grant the relief is discretionary. Therefore, it is especially important to make a strong argument and clearly state the reasons you should be granted taxpayer relief. If you require assistance with your taxpayer relief application, contact a tax lawyer at Rosen Kirshen Tax Law today!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.

by Jeff Kirshen

Principal Residence Audit

A Principal Residence audit occurs when the Canada Revenue Agency audits a taxpayer for the sale of one, or multiple properties where no taxes are paid. No taxes are paid because the taxpayer is claiming the Principal Residence Exemption, which shields any possible taxes owing.

 

Why did I Receive a Principal Residence Audit?

The CRA audits taxpayers who claim the Principal Residence Exemption because it allows the government to claim that taxes should have been paid on the sale. This means that the CRA goes from receiving no taxes, to possibly hundreds of thousands and even millions. The CRA has an incentive to tell taxpayers that they are not eligible for the Principal Residence Exemption, and they should be paying taxes.

 

How is this Possible?

The CRA will typically tell taxpayers that they are running a business of buying and selling homes. This normally happens where a taxpayer sells multiples properties over a short period of time. However, this may occur even if a taxpayer has only sold one property. There are many factors that go into this analysis, with the most common being frequency of any purchase and sales, and how long you lived in the property.

 

What to Expect during a Real Estate Audit?

First you will receive a letter from the CRA asking you for information and documentation. This letter will also request that you complete a questionnaire related to all of the properties you have purchased and sold during a certain time period. It is crucial that you seek assistance in responding to this first request because it can be the difference between paying no taxes, and paying tens of thousands of dollars in tax.

After you have responded to this first letter, you will receive a proposal letter. This letter explains the CRA position and explains whether or not you should be paying taxes on the sale of your Principal Residence.

You have an opportunity to respond to the proposal letter before you receive a final letter. This final letter contains the CRA’s decision. If you disagree with the final decision, you will have to file a Notice of Objection to continue your effort to pay no tax on the sale of your Principal Residence.

 

The Worst Part

If you are found to be running a business, it is possible that the CRA claims you should have been charging GST/HST on the sale of your property. What this means is if you sell your Principal Residence, only to be audited down the road. The CRA may claim that you owe them tens of thousands in taxes and penalties, and in addition, possibly hundreds of thousands of GST/HST.

 

If you receive a Principal Residence audit letter, you should consider consulting with a lawyer at Rosen Kirshen Tax Law immediately. This audit may mean the difference between owing hundreds of thousands of dollars in taxes, penalties, and GST/HST or owing no taxes to the CRA because you are found to be eligible for the Principal Residence Exemption. Call us today to see what we can do for you!

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.

by Jeff Kirshen

GST/HST New Home Housing Rebate

GST/HST New Home Housing Rebate

When you buy a new property in Canada, you must pay GST or HST on the purchase. However, purchasers can receive a rebate of some of the GST/HST paid, subject to certain conditions. In simple terms, you must have bought the home to live there, must actually live there, and no one can beat you to it. In Ontario, the value of this Rebate tops out at $24,000.

The rules work slightly different when two people both agree to buy a home. The provisions are very technical, particularly considering the fact that most rebate disputes tend to be fairly simple on their facts and in actual practice. When two people are buy a new home, both of them must:

1. Intend to move into the property when they agree to purchase the home;
2. Actually move into the home; and
3. Collectively be the first to occupy it.

This creates issues in two contexts: breakups and friends or family assisting with purchases (or some combination of the two).

 

Potential Rebate Issues

In the first case, a taxpayer and their partner agree to buy a home together. They both buy it in the hopes of moving into the home. However, before they take possession of the home, they break up. It would now be exceptionally awkward for them to occupy the home together. They hammer out some agreement amongst themselves, and only one partner moves into the home. Should the Canada Revenue Agency look into it, the partner moving into the property may be out $24,000! While they both intended to occupy the property, only one in fact did, failing the third condition above.

In the second, case, where a family or friend of a home buyer agrees to help them purchase a property and are put on title to assist with the purchaser receiving a mortgage, they may inadvertently disqualify themselves from the rebate. Even though the party joining title only did so in order to assist with mortgage acquisition, the joining party never intended to occupy the home! Combinations of the two may also arise, where a taxpayer’s partner agrees to help them finance the home, not intending to beneficially own it themselves, and they then breakup.

For years, some Taxpayers have tried to avoid these consequences using a series of arguments adding up to the claim that, “well, sure, they are on title, but the supply is really to me– I will pick up the tab, and they are only in it to help. It’s my house!” The exact legal jargon varies, but it involves trusts and the law of “equity”. The Tax Court of Canada has frequently granted purchasers the rebate using this argument, but CRA continues to fight against those using these arguments during the audit, or objection stage.

 

The Federal Court of Appeal

Recently, the Federal Court of Appeal has shut the door on this kind of response in the decision under Cheema v R, 2018 FCA 45. Basically, the majority judgment said that you could only stretch the legislation so far; prior decisions were attempts to avoid unfair results. This is not the way that the Courts are supposed to interpret tax rules. Tax law is about what is on the page, and judges have much less room to maneuver and determine a fair result in their own eyes. If you are on the agreement of purchase and sale, you need to intend to move into the home and actually move in. That’s what the statute says, and it is not up to judges to tweak Parliament’s phrasing, says the Federal Court of Appeal.

In a sense, the Court’s point is well taken. When reading the prior, more taxpayer-friendly decisions, one does get the sense that the judge is seeking to find a fair result, rather than applying the rules as written. Those decisions always involved some degree of reaching. Even if this decision is deeply unfair in specific cases, and even if the legislation has a tendency to kick heartbroken taxpayers when they are down, it at least provide certainty to the law. The presence of an authoritative ruling on this matter will, if nothing else, limit the money spent by purchasers on legal fees. At the end of the day, the law binds the courts, and in tax cases, those courts cannot eke out ad hoc, results-oriented rulings to help sympathetic litigants.

But the law, as written, is unfair. The way the rules are written is intended to prevent double-dipping by highly sophisticated married couples. They should not prevent nephews whose aunts help them get a mortgage, or couples with exceptionally poor timing, from availing themselves of the rebate. We truly hope that Parliament tweaks this legislation, preventing this irrational exception to entitlement for the rebate.

 

GST/HST New Home Housing Rebate Denial

Everyday the CRA takes away the GST/HST New Home Housing Rebate from taxpayers who very likely meet the conditions and should be entitled to the rebate. CRA typically states that the taxpayers have not provided enough proof that they live in the property, or intended to live in the property. Where rebates have been assigned to the builder, this creates an amount owing to CRA typically around $25,000.

If you find yourself reassessed as a result of one of the above situations, or the CRA deems you are not eligible for the rebate for any other reason, pick up the phone and contact us. We have assisted hundreds of taxpayers prove their eligibility for the GST/HST New Home Housing Rebate. We have won during the audit, objection and even Tax Court stage. We would be happy to discuss your options with you.

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.

by Jeff Kirshen

Exporting Vehicles – GST/HST and Input Tax Credits

Exporting Vehicles – GST/HST and Input Tax Credits

The sale and export of vehicles from Canada should theoretically yield GST/HST refunds. These are known as Input Tax Credits (ITCs). The reason for this is because you would have paid GST/HST to purchase a vehicle, and as a business, you are entitled to refunds on the amount of GST/HST you paid for business expenses. However, the Canada Revenue Agency’s (CRA) application of this simple concept is almost always more convoluted than one might expect. Essentially, the ability to claim Input Tax Credits, which allow for the recovery of GST/HST already paid out, prevent the government from engaging in double taxation.

To claim ITCs in these circumstances, the vehicle in question must have firstly been purchased from someone who is a GST/HST registrant. Similarly, as a vendor, you must also operate as a GST/HST registrant; thus you must operate under a business number (BN). The CRA explains that ITCs are available for the purpose of recovering GST/HST paid or payable on purchases and expenses related to your commercial activities. The CRA limits the application of ITCs to expenses or purchases that are reasonable in quality, nature, and cost in relation to the nature of your business. In most cases, you have up to four years after the due date for the return in which you could have first claimed the ITC to make your claim.

 

Why your ITC claim may be Denied

While the concept of GST/HST refunds may be straightforward, your entitlement to ITCs on exported vehicles depends on the CRA’s interpretation of your position in the sales process. It is possible that the CRA may view you as an intermediary agent for a foreign party rather than an independent exporter. If you are found to be an agent, the CRA will not allow your claim for ITCs.

Additionally, it is possible that you do not have the proper contracts in place when purchasing the vehicles. Occasionally, vehicles are purchased by third parties because large car manufacturers do not want to sell cars to someone who will turn around and ship them overseas. So the business enlists the help of these third parties, or agents, to purchase the vehicles on their behalf. If you do not have the proper paperwork completed with your agent, CRA may turn around and deny your ITC refund claim.

ITCs add up quickly, especially when exporting vehicles is the substance of your business. An unexpected and sometimes drawn out audit procedure on part of the CRA can cause substantial cashflow issues to your business. While maintaining organized books and records will help to minimize possible audit issues, keep in mind that you are asking for a refund from the Canadian government. It is in their interest to deny you so they may hold onto the money for themselves.

 

Grey Market Goods

The reason car manufacturers do not want to sell cars to those who will turn around and export them is because they are not a fan of the grey market. The grey market are items purchased in one country or region that are supposed to be sold and enjoyed in that country or region. However, those items are then exported to another country or region where they are sold for double, triple or even quadruple the amount they cost in the original country. Some luxury vehicles cost $100,000 to $200,000 here in Canada, but may cost $400,000 to $500,000 in other markets.

 

If you have been claiming ITCs, and you have received an audit letter, you likely need professional assistance. Here at Rosen Kirshen Tax Law, we have assisted taxpayers through audits, objections, and even Tax Court where the CRA has questioned their ability to claim ITCs. We have been successful in proving that taxpayers are not foreign agents, and are eligible to receive their refund claims. Contact us today to learn more.

 

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.