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4561 Lecture 11 Summer 10

4561 Lecture 11 Summer 10 - 1 LECTURE 11 CASE STUDIES AND...

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1 LECTURE 11: CASE STUDIES AND RECENT DEVELOPMENTS – last updated July 18, 2010 – changes in red Topics I. Legislative Update: GST and HST II. Three cases in notes. I. Legislative Update: GST and HST 1 GST History - 1991 – GST replaced the FST - 1992 - Quebec replaced its PST with a tax similar to GST: Copy of GST legislation in Quebec statute, Quebec collects and administers both taxes - 1997 - NS, NB and Newfoundland replace their PST and GST with a single HST (Provincial portion contained in Federal ETA, CRA administers both taxes (Ontario & BC HSTs will be similar) Key issues 1. Is it a taxable supply? (supply of a good or service… includes sales, rentals and leases) Exempt items = financial services = e.g. dividends interest, insurance, most government services = tuition, residential rent, daycare, medical services Worst case scenario: Don’t charge GST and no ITC (Public service bodies get partial rebate as per below) Zero-rated = basic groceries, prescription drugs, medical devices, exports Best case scenario: GST rate = 0; claim ITC Taxable = everything else (5%) Charge GST, claim ITC 2. Does GST apply? Is it a taxable supply by a GST registrant? Small supplier test = <$30K Revenues in previous year 1 These notes are based on the draft legislation released as at December 1, 2009 as well as the HST information notices issued by Ontario (3 to date) and the CRA as well as the existing rules under the Excise Tax Act (ETA). Joanne Magee [[email protected]]
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2 3. Will there be an input tax credit? - Yes, if GST relates to cost of a business = taxable supply carried on by a GST registrant - the cost can either be an expense or a capital property (fixed asset) - Some GST rules parallel income tax rules denying a deduction (e.g. club dues, reasonableness test, 50% meals & entertainment, 67.3 car lease restriction) - GST is due on sales/GST paid is eligible for ITC as of invoice date - GST registrants remit GST on sales/claim ITC on purchases on next GST return 4. GST Rebate = 5/105 X deductible expenses of employees and partners; excludes exempt and zero-rated items 5. GST Benefit = GST relating to taxable benefits - No GST benefit on money, non-taxable benefits or exempt items Harmonization effective July 1, 2010 1. Basics - Effective July 1, 2010, the Ontario Value Added Tax (OVAT) will replace existing Ontario Retail Sale Tax (RST): 13% HST rate = 5% GST plus 8% OVAT - BC will be introducing its HST at the same time:similar to Ont. but at a 12% HST rate 12% HST = 5% GST plus 7% BCVAT. - Note: the 13% HST rate also applies for NS, NB and Newfoundland. 2. Disclosure Ontario will adopt the disclosure of a single HST rate. That is, the 5% GST and 8% OVAT do not have to be shown separately on an invoice. There will be no tax included pricing. (Tax- included pricing would require the approval of the HST provinces representing at least 51% of the population in Canada.) 3. Administration No change in the 8% OVAT rate will be permitted with the first 2 years of the HST.
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