Help biz owners with new tax rules

This year’s federal budget proposed changes aimed at bolstering business-owner tax compliance by eliminating a perceived loophole in GST/HST legislation.

Read: Federal Budget 2014: Tightening the Screws

Under current rules, businesses earning annual revenues in excess of $30,000 must collect and remit GST or HST (and, depending on province, PST or QST) on behalf of the federal government.

Exceptions are if the business is a “small supplier” (i.e. earning less than $30,000 a year), is a non-resident or, in certain cases, if it’s on a sale of real estate. A GST/HST return is normally required on a periodic basis (monthly or quarterly) to calculate, report and remit the tax to CRA (Revenue Quebec where applicable).

To compensate for these efforts, businesses can deduct GST/HST paid on supplies, known as input tax credits. The difference is remitted to the government (or refunded if input tax credits exceed GST/HST collected on sales).

The process

Registration is the first step. Once CRA gets the application it issues a registration number and a confirmation of the date of registration.

Under current legislation, it appears CRA cannot register a business for GST/HST purposes unless the business requests to be registered. This seems to be the case even if the business has to be registered. The federal budget confirms it when it says, “while efforts are made to ensure that businesses meet their tax obligations, a business that fails to register [for GST/HST] as required cannot currently be compelled to do so.”

Some businesses have attempted to take advantage of this provision in the Excise Tax Act (ETA): they’re avoiding GST/HST responsibilities simply by avoiding the registration process.

But the Department of Finance has had enough. New legislation is coming that will give the CRA the authority to automatically register and assign a GST/HST registration number to businesses that fail to comply with the registration requirement.

Read: Discuss payroll taxes with biz owners

CRA will first contact non-compliant businesses and ask them to register. If they still don’t comply, CRA will issue a formal notice indicating they’ll be automatically registered 60 days from the date of the notice. Presumably, non-compliant businesses will be subject to penalties and interest should GST/HST returns not be filed correctly and on time.

To effect this change, section 241 of the ETA is proposed to be amended as follows:

(1.3) If the Minister has reason to believe that a person that is not registered under this Subdivision is required to be registered for the purposes of this Part and has failed to apply for registration under this Subdivision as and when required, the Minister may send a notice in writing (in this section referred to as a “notice of intent”) to the person that the Minister proposes to register the person under subsection (1.5).

(1.4) Upon receipt of a notice of intent, a person must apply for registration under this Subdivision or establish to the satisfaction of the Minister that the person is not required to be registered for the purposes of this Part.

(1.5) If, after 60 days after the particular day on which a notice of intent was sent by the Minister to a person, the person has not applied for registration under this Subdivision and the Minister is not satisfied that the person is not required to be registered for the purposes of this Part, the Minister may register the person and, upon doing so, must assign a registration number to the person and notify the person in writing of the registration number and the effective date of the registration, which effective date is not to be earlier than 60 days after the particular day.

The Department of Finance has indicated that the measure’s meant to improve the effectiveness of CRA’s GST/HST compliance efforts and level the playing field for compliant businesses.

As an advisor, you can reinforce you value by raising client awareness of the impending changes, and help them ensure they fully meet their GST/HST obligations.

Read: Feds reduce red tape for small biz

Wilmot George

Tax & Estate

Wilmot George, CFP, TEP, CLU, CHS, is vice-president, Tax, Retirement and Estate Planning at CI Global Asset Management. Wilmot can be contacted at wgeorge@ci.com.