Tidbits – I have a customer claiming they’re exempt from GST/HST?

By Randall Orser | Personal Income Tax

Paying TaxThere are many people out there that will refuse to pay GST/HST on your goods/services. They say ‘let’s make a deal’ and pay cash without the taxes. Some people just want a deal and think they’re being savvy by not paying the taxes; however, not realizing that the poor vendor eats the tax as you still have to claim the sale (at least you should be). Some of them are calling themselves “Freemen”. Sadly, these are mistaken individuals who are really deluding themselves that the laws, and the tax laws of Canada, do not apply to them. The Supreme Court of Canada has said otherwise.

The only exempt person is a Status Indian (the legal term used according the Indian Act). Indians, Indian bands, or unincorporated band-empowered entities can buy goods on a reserve without paying the GST/HST if they have the appropriate documentation to show the vendor. Indians, Indian bands, and unincorporated band-empowered entities, as well as incorporated band-empowered entities purchasing for band management activities, may buy goods off the reserve without paying the GST/HST if:

  • They have the appropriate documentation to show the vendor; and
  • The goods are delivered to a reserve by the vendor or the vendor’s agent.

However, if the purchaser uses his or her own vehicle to transport the goods to the reserve, the purchase is subject to the normal GST/HST rules.There are some special rules for the Provinces that are charging the Harmonized Sales Tax (HST). Check CRA’s website for those rules. Also, many Provinces exempt Indians from their Provincial Sales Tax, check with your Province for details.

Goods bought on a reserve by non-Indians will be subject to the normal GST/HST rules.

What do you do?

In a situation like this it’s hard to say ‘no’ as you don’t want to give up a sale. However, you have to be careful in this situation as Canada Revenue Agency has ‘spies’, yes that’s right, and they are hired to find people avoiding taxes. Someone will call you and say they would like to perform your service or buy your product from you. Of course, they’ll approach you with the ‘if I pay cash, can we avoid the taxes’ and you say yes and just get the sale without the taxes and you take the cash. You then don’t bother recording the sale since it was cash and no one will know anyway. The next thing you know you’re getting audited. Now, I don’t have definitive proof, however, there are a couple of stories I’ve heard that this does make sense.

The best thing to do is either don’t take cash, or if you do, just say, sorry I have to charge GST/HST whether it’s cash or not. If you lose the sale, then so be it, they weren’t worth dealing with in the first place. Let’s face it, if someone is willing to cheat on the taxes, then more than likely they’ll end up cheating you.

Some of my clients have been including the taxes in their quotes. For example, if the amount before GST/HST is $300 (and they need to charge 5% GST/HST) then they say it’s $315. If the client asks about taxes then he says that includes the taxes. One client I know adds 20% to his quotes initially, and then if the client balks, he lowers it by 10% and still gets most of the taxes. If you’re finding you’re getting a lot of these types of people, you really need to find new clients.

The ones I love are those people who write you a cheque but forget to include the taxes; ensure you look at the cheque before you leave, as it is very hard later on to get another cheque for the taxes. Some clients have found they need to invoice with the taxes included as many people just look at the subtotal and not the invoice total.

Running a business has all sorts of issues, and you don’t want to get into a situation where you’re not collecting the taxes on your gross sale amount and then eating the taxes. The main issue this tax situation raises is the types of clients you’re attracting. Attract the right clients and the taxes shouldn’t be an issue.

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