Complex and risky
Canada’s system of Value-added-taxes – including the Goods and Services Tax, or GST, the Harmonized Sales Tax (HST), and the Quebec Sales Tax (QST) – is complicated and poses risks for businesses. But there is a way to make it simple.
Leaving money on the table
Much of Canada’s revenue comes from value-added taxes. Value-added taxes grow at every step in the chain from raw materials to distribution. Because the intent is for the ultimate consumer or purchaser to pay such taxes, the law includes mechanisms for businesses along the way to recover the value-added tax they’ve paid. But if a business makes a mistake, it could leave significant money on the table. For example, if a company in Alberta buys $100,000 worth of taxable manufacturing supplies, it will pay $5,000 (at the current 5% GST rate) in Goods and Services Tax. If it fails to claim an Input Tax Credit, it cannot recover that money, even though the law would allow it to.
Fine, just fine.
A business can also be exposed to risk by claiming too much of a tax credit or refund, even if it’s accidental. Audits regularly zero in on employee reimbursements and allowances. This is because companies often make mistakes in calculating the recovery of tax on these transactions. Late payments are another area where mistakes can be expensive, as a 2012 article in the Globe and Mail mentions. The article said the Canada Revenue Agency fined a hairdresser for not making a quarterly GST payment: “She had stopped receiving the forms in the mail and had assumed that an annual payment would suffice” the article said. “CRA found her to be non-compliant and imposed a large fine, yet she had always intended to make the payment and was unaware of the new internet-based transaction procedures.”
Layers of Complexity
And it gets even more complex. Five provinces have “harmonized” their provincial sales taxes with the GST, adding a percentage to the national 5%.Depending on the province, the total rate of this HST can be 13, 14 or 15%. Quebec has a different value-added tax, the Quebec Sales Tax or QST, which is currently charged at 9.975%. Also, a number of restrictions and limitations cover reimbursements for items like meals and entertainment, telecommunications, and motor vehicles. And with every legislative session the rules change, at least slightly.
A map for a confusing landscape
How to stay on the right side of the law and get everything back you’ve got coming? Since so much of the risky tax terrain involves reimbursements, an automated expense reporting solution like Concur can help, with the intricacies of the law built into the software, and periodic updates that cover legislative changes. Our guide to Canadian taxes and expense reporting, prepared in co-operation with the tax experts at Ryan, explains the potential complications, gives examples of how GST, HST and QST work, and shows how Concur can help head off those risks.