Category Archives for "Business"

What are the Penalties for Filing a Late GST/HST Return?

By Randall Orser | Business , Retail , Sales Taxes

Businesses that have registered to charge and collect GST must file a return to the CRA at intervals determined by the CRA. Depending upon your business income you may have to file monthly, quarterly or annually. If a business misses it's filing deadline it may be subject to penalties.

The CRA says that if a business has a zero balance GST account or it is owed a refund from the CRA then it will not get any late penalties.  If a business does owe a balance and files a late return then late penalties will be applied.  GST penalties are 1% of the balance owed, plus the result of the calculation of 25% of the 1% x the number of months the return is overdue to a maximum of 12 months.

For example:   1% of $20,000  = $200

                        (25% of $200) x  6 (months)    = $300

                        $300 + $200 = $500 total penalties

In addition the CRA will charge interest on any overdue amount equal to the 90 day Treasury bill rate plus 4%.  This also applies if you have been instructed to make instalment payments and you do not pay by the due date.

There are other penalties that you can incur by not filing a GST return on time.  If you receive a demand to file a GST return and do not do so then a penalty of $250 will be charged.  If you fail to file electronically when required to do so you will be charged a penalty of $100 for the first offence and $250 for each instance afterwards.

What happens if you file an incorrect return?

  • If you make a genuine mistake for example forgetting to include an Input Tax Credit you can include it on a subsequent return.  You have up to four years to claim a missing ITC
  • For other errors such as incorrectly reporting the amounts of GST collected or collectible you will have to request an adjustment of the reporting period affected and this can usually be done through your My Business Account
  • If you have deliberately incorrectly reported and wish to correct this at a future date you use the CRA voluntary disclosure program and pay amounts owed and hopefully avoid penalties and prosecution, although filing through this program does not automatically mean that your request will be granted.
  • If you file an inaccurate return you can be subject to a penalty of 5% of the amount plus 1% per month of the difference between the amount you initially reported and the actual amount up to a maximum of 10%.

It is worth also noting that you cannot claim any income tax deduction for penalties or interest that you may have to pay if you file your GST report late. 

From an article by Susan Ward

Which Goods and Services are GST Exempt or Zero Rated?

By Randall Orser | Business , Retail , Sales Taxes

If think that your new business may have to charge GST/HST you need to know the difference between zero rated and exempt goods and services because not all businesses need to charge this tax.

For the customer there is no difference between GST exempt and zero rated goods as in both cases they are not charged the tax.  For businesses there is a difference in how the two classes of goods and services have to be entered onto the GST return.  Normally when completing the return a business can claim input tax credits to recover the GST paid or owed on business purchases and expenses.  

  • For zero rated goods a business does not charge or collect GST but can still claim ITC's on it's GST return.
  • For exempt goods and services the tax is not charged or collected and Input Tax Credits cannot be claimed.

Which goods and services are zero rated?

  • Basic groceries but this does not include items not necessary for dietary needs such as snack foods, liquor, soda and candy.
  • Most fishery products except those used for bait.
  • Farm livestock sold for human consumption, GST is charged on livestock sales not used for human consumption such as horses, dogs, and cats.  Animals such as rabbits and goats will be zero rated if sold for consumption or GST will be charged if they are sold as pets.
  • Farm equipment such as tractors, seeders, planters and processing equipment.
  • Prescription drugs and dispensing fees are zero rated however drugs sold over the counter are subject to GST.  
  • Medical devices such as artificial teeth, walkers, wheelchairs, canes, eyeglasses, contact lenses and orthotics and others are zero rated.
  • Freight transportation services involving the movement of goods from Canada to other countries and vice versa.

Which good and services are exempt?

  • Used residential housing, GST is only charged on new or substantially renovated housing.
  • Residential rental accommodation if equal to or greater than one month duration.
  • Music Lessons
  • Medical and dental services except for procedures deemed to be non healthcare-related such medical reports, disability certificates and cosmetic surgery to enhance someone's appearance.
  • Issuing insurance policies 
  • Educational services leading to a certificate or diploma, upgrade certification or tutoring services for a designated school curriculum.
  • Most goods and services provided by a charity.
  • Financial services such as fees for bank accounts.
  • Legal aid services
  • Day care services for children aged 14 or younger
  • Food and beverages in an educational institution

Some goods and services that are exempt from the federal GST are not exempt at the provincial level in provinces that charge a provincial sales tax so they are subject to the tax.  As each province is different businesses should refer to the exemption list for the province in which they are doing business.  For British Columbia check  PST Exemptions.

From an article by Susan Ward

How to Pay the GST/HST that Your Small Business Owes

By Randall Orser | Business , Sales Taxes

If you are a small business whose total taxable revenue before expenses is $30,000 or less in the last four consecutive calendar quarters or a public service such as a non-profit organization with total tax revenues of less than $50,000 in the last four consecutive calendar quarters you are classified as a GST/HST small supplier and you do not have to charge GST/HST.  That applies unless you are a taxi or limousine operator or a non-resident performer who sell admissions to seminars or other events, who must register for GST no matter how small their income is.

If you do not qualify as a small business then you will need to charge, collect and remit GST.  To start the process you will need to register for a GST account with the CRA.  You will then keep track of all the GST that you charge or pay and complete a GST tax return each quarter or assigned reporting period which can also be monthly or annually depending upon your total taxable supplies of goods and services in the previous fiscal year when you register.

Even if you do not qualify as a small supplier it may be to your advantage to register for the GST.  Though you will be paying GST on the goods and services that you use in the course of your business you will also be able to recover some of the GST that you paid out on business purchases through  Input Tax Credits.

You must submit your GST returns on time according to your reporting period schedule even if you have not conducted any business or collected any GST during that period.  On each report you will show the amount of GST that you charged your customers and the amount of GST that you paid or owe your suppliers.  The difference between these two amounts is the amount of tax you will pay.  Of course it is not as simple as it sounds as you may have GST charged but not paid to you and bad debts adjustments so you may need to refer to   RC4022 - General Information for GST/HST Registrants for help.  

When your form is completed you have a number of ways that you can pay the amount you owe.

  • Pre-authorization - authorize the CRA to take a take a payment from your bank account
  • Make your payment on line or phone it in through your bank's telephone and online banking services, or pay it in person at your bank.
  • E-transfer, credit card or PayPal
  • By cheque through snail mail using the personalized GST return form sent to you by the CRA.
  • Electronically - the CRA encourages all registrants to use electronic GST filing methods through Netfile,  Telefile, Electronic Data Exchange, or GST Internet File Transfer. 
  • CRA My Business Account which also allows you to manage other tax related payments such as payroll, corporate income tax, excise tax.

If you do not File a GST return on time, unless you have a $0 balance you will be subject to penalties. 

From an article by Susan Ward

What are Input Tax Credits?

By Randall Orser | Business , Sales Taxes , Small Business

Input Tax Credits or (ITC's) are the sum of the GST/HST you paid on legitimate business expenses or the allowable portion of the GST/HST paid.  The CRA refers to these as Input Tax Credits and they used by businesses to recover the GST/HST paid on purchases and expenses related to operating their business.

To use ITC's you must be registered for the GST/HST and then each time you incur an expense or make a purchase related to your business you need to keep your receipt and keep track of these payments in your bookkeeping system.  It is very important that you keep your receipts so that you can prove your claim in case of a CRA audit.

Some of the expenses that you can claim ITC's per the CRA website include: rent, equipment rentals, advertising related expenses such as business cards, flyers and ads, accounting and other professional fees, home office and motor vehicle expenses, office expenses such as stationery, postage, computer and a certain amount of travel including airfare, car rental and hotel rooms.  You can also claim ITC's on Capital expenses including: capital property, machinery and vehicles, furniture and appliances, and improvements to capital property.  See the CRA website for a full list.

According to the CRA you can only claim Input Tax Credits for anything related to your business and the the purchase or expense must be reasonable in quality, nature and cost.  Some of the things that you can't claim for include: some capital property, membership fees or dues to a club which include dining, recreation or sporting facilities (including golf clubs, and fitness clubs) unless you acquire the membership to resell in the course of your business, and taxable goods and services bought or imported to provide exempt (zero rated) goods and services.

From an article by Susan Ward

Working from Home – Why it can be Advantageous for Employers

By Randall Orser | Business , Cloud-computing , Employees , Small Business

If your boss is on the fence about allowing you to work from home a compelling study from Stanford economics professor Nicholas Bloom was featured in an article by Ari Surdoval in Ideas.Ted.Com showed that it can be very advantageous especially for employers. 

When most people imagine working from home they see someone in their pajamas watching Netflix on their laptop.   They believe that working from home can be shirking from home.  Professor Bloom had previously worked from home himself and knew that it was becoming more and more common around the world, so he believed that there had to be more to it than just watching Netflix.  

In the US the number of people working from home has tripled over the past 30 years and was 2.4% of the workforce in 2017.  In countries where mobile technology and improving digital connections have coincided with traffic congestion and sky high commercial rents between 10 and 20% of employees work from home for at least part of their work week.  This was true of the company Bloom used for his controlled trial to put remote work to the test.  The company was one of China's largest travel agencies with a workforce of 16,000.  The company CEO recognized that the company was losing many employees in part due to workers being priced out of the city of Shanghai and having to endure long commutes.

More than 500 employees in the call centre volunteered, about half met the study qualifications which included having a private room at home in which to work and a decent broadband connection as well has having been an employee for six months.  Those with even numbered birthdays would telecommute four days a week while the others would remain in the office as a control group.  Company managers were concerned that as the call centre workers were among the youngest in the company they might be easily distracted without supervision.  

The study lasted for nine months and the results stunned Bloom and the CEO.  The company saved $1900 per employee on office space during the study


Thinking About a Business Partnership in Canada?

By Randall Orser | Business , Business Income Taxes , Partnerships

Are you considering entering into a business partnership?  A business partnership is one or more legal entities such as individuals, corporations, trusts or partnerships pooling their resources to operate a shared business.  The resources that each partner brings to the partnership does not have to be financial, it can be also be skills, labour, or property.  Although all partners will share the risk in the partnership they may or may not equally share the business profits, losses or liability, each person’s share is determined by the partnership agreement that is drawn up.  The amount of liability for each partner will depend upon the type of partnership which is created.

There are three types of partnerships available in Canada:

GENERAL PARTNERSHIP - This is the most common type and is defined as a business arrangement between one or more individuals who share the profits and liabilities of the business.  In this type of partnership all partners are fully liable for the debts, contractual obligations and torts resulting from the business operations and all can be personally sued for something that happens in the business.

LIMITED PARTNERSHIP - This is a partnership of one or more general partners who have unlimited liability and one or more partners with limited liability depending on their contribution to the business.  Limited partnerships are often set up with a corporation as the general partner and the individuals as limited partners.  A limited partner can also be a “silent” partner where they contribute financially and may provide advice, but they are not otherwise involved in the business.

LIMITED LIABILITY PARTNERSHIP – This gives the partners more protection than if they were general partners. For example, if a client wanted to sue the partnership only the partner who had worked with the client would have assets at risk.  Most provinces only allow Limited Liability partnerships in high-risk professional businesses such as lawyers, accountants or doctors where there is little overlap in the everyday business of each partner, and the protection provided varies between provinces.  Here is the link to the partnership act in BC. http://www.bclaws.ca/civix/document/id/complete/statreg/96348_01

For tax purposes partnerships are treated like sole proprietorships.  Each partner reports their own income and pays tax on their personal tax return, and reports profits and losses accordingly.

No matter which type of partnership you are considering, a written partnership agreement is a must so that all participants understand what is involved in the partnership.  

From an article by Susan Ward