21%20Goods%20and%20Services%20Tax0

21%20Goods%20and%20Services%20Tax0 - Chapter 21 - Goods and...

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Unformatted text preview: Chapter 21 - Goods and Services Tax/ Harmonized Sales Tax Introduction to G/HST • This tax was introduced in January, 1991 • Replaced Federal Sales Tax on manufactured goods • The G/HST is broadly based – most transactions for goods and services are subject to G/HST • The G/HST is a transaction tax • The G/HST is a multi-stage tax • The G/HST is still controversial • The relevant legislation for G/HST is the Excise Tax Act Harmonized Sales Tax • Implemented in Quebec in 1992, with some differences from GST, and called the QST. • Implemented identical to GST in Nfld, New Brunswick and Nova Scotia in 1997 • Implemented in Ontario (13%) and BC (12%) in 2010. In both provinces, the HST is not identical to the GST, it does not always apply to the same goods and services. • We will focus on businesses that have just the GST or just the HST to deal with. Transaction Tax • Easy to administer: – Calculation is simple – Tax is difficult to avoid – Does not discourage individual initiative – Consistent application • But… – Lower income people spend a greater portion of income, and therefore pay a higher effective rate, so these taxes are regressive. – Government tries to compensate by having a G/HST credit that only lower income individuals who file income tax returns can receive. Complete Exercise Twenty-One-1 on Pg. 967 Complete Self Study Problem Twenty-One-1 on Pg. 995 How the G/HST works Cost of product Selling price Amount subject to G/HST G/HST Remitted at 5% Raw material $4 $4 $0.20 Manufacturer $4 $10 $6 $0.30 Wholesaler $10 $25 $15 $0.75 Retailer $25 $50 $25 $1.25 Consumer $50 Total tax through distribution chain $2.50 • Note: G/HST payment is required at all levels of the transaction, but the consumer bears the burden of the tax. – Consumer pays $50 x 5% =$ 2.50 How the G/HST works • Each level of the transaction chain is responsible for collecting the tax from the next level and remitting this amount to the government. Total collected = $4.45 • Each business must determine how much was paid to levels before them in the transaction and deduct this from the amount they collect. Total paid to lower levels = $1.95. This amount is called the INPUT TAX CREDIT. • Net collected by government = $2.50. The consumer pays this amount, but is not entitled to any credits back. Pay tax Collect tax Net remitted Raw Material $4 x 5% = $0.20 $0.20 Manufacturer $4 x 5% = $0.20 $10 x 5%= $0.50 $0.30 Wholesaler $10 x 5%= $0.50 $25 x 5% =$1.25 $0.75 Retailer $25 x 5% =$1.25 $50 x 5% = $2.50 $1.25 Totals $1.95 $4.45 $2.50 What is taxable?...
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This note was uploaded on 01/31/2011 for the course MOS 4462 taught by Professor Ann during the Fall '10 term at UWO.

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21%20Goods%20and%20Services%20Tax0 - Chapter 21 - Goods and...

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