The HST Blog : Canada Harmonized Sales Tax Lawyer Cyndee Todgham Cherniak for Assessments, PST & RST Issues in Ontario, British Columbia & Quebec

Based on personal experience and not any official report from the Canada Revenue Agency ("CRA"), it is obvious to sales tax professionals that the CRA are concerned about goods and services tax ("GST") and harmonized sales tax ("HST") registrants over claiming input tax credits.

On a GST/HST return for a reporting period, the registrant must report the amount of GST/HST collected during the reporting period on its taxable sales.  However the registrant remits "net tax" after adding amounts it must add and deducting amounts it may deduct.  One of the most important category of deductions from GST/HST collected is input tax credits being claimed.  The more input tax credits, the less GST/HST that must be remitted (and in some cases, the larger the refund cheque).

The most obvious concern to CRA auditors is that GST/HST registrants claim false input tax credits when they file their GST/HST returns.  False claims are when a person did not actually purchase a business input and are making up a deduction.

One of the most common audit issues if failure to maintain records relating to input tax credits that meet the documentary requirements of subsection 196(4) of the Excise Tax Act (Canada) and the Input Tax Credit Information (GST/HST) Regulations.  The CRA will reject input tax credits when the documents to support the claims are not available or if the documents do not contain all the relevant information (e.g., the GST/HST number of the supplier).

Another common audit issue is that the input tax credit is claimed too early (and, therefore, in the incorrect reporting period.  For example, a business files monthly returns.  A business buys a building on March 2nd.  If the registration claims the input tax credit for that building purchase in the February GST/HST return, the input tax credit will be denied and moved to March.

The last two areas of concern are often a source of frustration for businesses.  Honest business owners can get caught.  They are not the bad guys who are essentially stealing money by making false claims.  They are often busy and do not have the best record-keeping systems or do not have the time to chase down a supplier for information after the goods/services are provided and the money has been paid.  They do not pour over every detail on a piece of paper because hey know what transaction transpired.

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British Columbia Premier Christy Clark and Finance Minister Kevin Falcon should act like the Chairman and Chief Financial Officer of a publicly listed corporation.  What would the Chairman and CFO of a publicly listed corporation do if the federal government issued a harmonized sales tax ("HST") assessment for $1.6 Billion?  They would hire the best lawyers in the area of commodity tax and the best litigators to review all relevant documents, all relevant law and see if there is any valid argument to object to paying the assessment.  The Chairman and CFO of a publicly listed corporation would attempt to preserve shareholder value if at all possible. The Chairman and CFO would not give up immediately and write a big cheque without considering all legal options.

Yesterday on the Lang & O'Leary Exchange on CBC, I discussed the need to review carefully the Comprehensive Integrated Tax Coordination Agreement between Canada and B.C..  Annex C addresses the issue of the transitional payment of $1.599 Billion and what happens if the CITCA is terminated before the 5 year anniversary date.  Sections 9-17 of Annex C are the most relevant to consider.  The key question will be whether British Columbia has committed a "material breach" under the CITCA?

The answer to this question needs to be considered carefully given the fact that the people of British Columbia have spoken in the referendum and the Government of Canada cannot demand the Government of B.C. to ignore the will of the people in the very unique circumstances.  This is not a case where the politicians have unilaterally decided to back out of the CITCA.  In fact, Premier Clark does not want to terminate the CITCA and may hope to try again in the future to implement the HST.  The Government of B.C. has followed the law in holding the referendum and has spent significant resources to educate the public about how they should vote.  How do these facts interact with the CITCA wording?

I am not saying that this is the answer to the $1.599 Billion question.  I am saying that a lot of questions need to be asked of really smart people who are not ex-political aides.  It is time to ask HST lawyers and contracts lawyers and litigators to canvass all the legal arguments.  In the end, the $1.599 Billion may be payable.  Let's not start with that conclusion and give up on asking more questions.

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This is a problem now and the problem will occur more regularly in British Columbia after the referendum results are misstated and people believe the HST should not be charged.  The answer that vendors, sellers & service providers do not want to hear is the only answer to give.

GST/HST registrants are tax collectors for the government.  They must charge, collect and remit the HST or risk an assessment plus interest and penalties.  During an audit by the Canada Revenue Agency ("CRA") will assess the registrant for failure to collect HST or a failure to remit the HST.  This means that if the vendor does not charge the purchaser HST (when he/she should), the CRA will assess the vendor.  If the vendor does charge the HST on the invoice and the buyer does not pay the HST, the vendor must remit that HST to the government with its GST/HST return for the period during which the transaction took place (regardless of whether the money was actually received).  If a vendor fails to remit HST, it will be assessed.

There are special rules for bad debts that do not apply to only the HST portion.  There are also special rules that allow a registrant (seller) to sue a recipient (vendor) for HST, however, these rules only kick in after an assessment by the CRA.

The CRA auditors will not be sympathetic when a vendor does not follow the rules.  Telling an auditor that the buyer refused to pay the HST will fall on deaf ears.  The auditors will not care that the vendor would have lost the sale and the profits related to the sale.

Vendors in British Columbia should post a sign in their shops telling buyers that HST will be collected until the transition date (currently said to be March 2013).  This includes service providers who provide in person services (such as hair salons).  Other vendors and service providers should include a statement in quotations that:

 "Harmonized Sales Tax ("HST") is payable in respect of any property or services provided prior to the date established by the Province of British Columbia and Federal Government of Canada to transition to a provincial sales tax (the "Transition Date").  HST will continue to be charged after the Transition Date if required by law.  All applicable provincial sales taxes are payable in respect of property and services provided after the Transition Date."

This statement may be added to contracts for property or services.

If a buyer does not pay the HST after the property or services are provided, the vendor may pursue the buyer in Small Claims Court or the provincial court for breach of contract.  However, in respect of point of sale refusals, the vendor will have to make a business decision whether to meet refusal with a refusal to make the sale. Service providers and restaurant owners who have provided the service and experience the refusal at the cashier are in a very difficult position and may have no other option but to call the police before the person dashes (while being careful to avoid a false imprisonment claim made against them).

In any event, document any situation where there is a refusal to pay the HST and provide as much detail as possible..  Even if an unsympathetic CRA officer will not accept the information, the Tax Court of Canada may sympathetically suggest that a remission order would be appropriate.

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Now that the British Columbia referendum results are in, Ontario voters will have their opportunity to brand the HST in the October 6, 2011 election. 

The BC voters have demonstrated that the "Hated Sales Tax" will become a "Historical Sales Tax".  They have clearly told the B.C. Liberals that it is a "Half-Baked Sales Tax" and they should have thought longer and been more open about it.

The McGuinty Liberals in Ontario will paint the BC referendum results as the "Hiccup Sales Tax" trying to distance themselves from the results.  They may even go so far as to say it is the "Humanity Sales Tax" that Ontario must have it in the name of societal welfare.

The McGuinty Liberals will label it the "Happy Sales Tax" stating that Ontarians are happy to pay the HST (I do not believe this for a second).  Or, the "Harmonious Sales Tax" because Ontarians live in harmony and peace with the HST (yah right!). In an attempt to appeal to young voters, it may be called the "Hip Sales Tax".  It will definitely be a "Hyped Sales Tax" by the time the election is over.

The Progressive Conservatives in the Ontario election campaign period have a platform to highlight the worst of the HST in Ontario, such as the added costs of living for real people in Ontario.  Tim Hudak has promised to implement a point of sale rebate on heat and hydro so that it is not longer the "Hydro Sales Tax" and "Heat Sales Tax".  When people cannot afford the necessities of life, it will be the "Hungry Sales Tax" as their prepared food order exceeds the $4.00 threshold.  Retail sales tax was not payable on real property and the HST is a "Homeownership Sales Tax".  Retail sales tax was not payable on most services and HST is a "Haircut Sales Tax".  Retail sales tax was not payable on hockey lessons and rentals of arenas and HST is a "Hockey Sales Tax". The HST causes provincial health care budgets to balloon and is a "Hospital Sales Tax" and "Health Sales Tax".

The Ontario voters may turn it into the "Heckle Sales Tax" and cat lovers the "Hairball Sales Tax" (whating to spit it back at the liberals).  Many will say it is a "Hypocritical Sales Tax" as the McGuinty Government should have considered and implemented significant spending cuts before promoting and implementing HST. Those who believe that McGuinty did not listen to the people who voted for  him in the last election may call it the "Hearing-loss Sales Tax".

Prime Minister Harper will take some hits in Ontario with the brand "Harper Sales Tax", but he has a majority and will shrug it all off.

Are there other examples of what HST stands for? 

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The British Columbia voters have voted that the Harmonized Sales Tax ("HST") should end and the province should return to imposing a provincial sales tax.  The referendum results show 54% "Yes" to vote out HST.  In other words, the B.C. voters have told the government that they made a mistake in joining the harmonized provinces and they must correct their very costly mistake.

This referendum on tax policy is historic.  The anti-HST group have successfully used the Recall and Initiative Act (British Columbia) to force a referendum on tax policy.  This was a huge undertaking requiring 15% of registered voters in each riding to sign a petition in favour of holding a referendum.  Over 700,000 people signed the petitions in British Columbia. Those signatures needed to be counted and verified.  This was the first success as the hurdle to get to the referendum stage is high (almost, but not quite, insurmountable). Then the referendum resulted in 1.6 million votes being submitted before the deadline on August 5, 2011, which needed to be counted by Elections BC.  Today, the outcome of the referendum is the key success.  The people have successfully voted against the HST sales tax regime. The reasons for individual votes are varied.  Many wanted to send the B.C. Campbell Government a message that they had made a big mistake and must fix the mistake regardless of the cost.  Whether this is right or wrong can be debated by others.

The sun will set in British Columbia tonight and rise again tomorrow morning.  The upcoming change in tax policy will not have radical effects.  British Columbia will continue to be beautiful and  destination for tourists.  Businesses will continue to consider British Columbia to be a gateway to and from Asia.  Businesses will open and close in British Columbia no differently than in Alberta, Saskatchewan, Manitoba, Prince Edward Island and the territories who have not harmonized their sales taxes (to the extent they impose a provincial sales tax). Life will go on and the various arguments raised in the referendum debate will fade away.

British Columbia will undoubtedly have budget issues to resolve in connection with the change to tax policy.  The province was heading in the direction of the HST and now the direction should change in the direction of the previous sales tax regime.  The people will be watching the Clark Government very closely looking for acceptance of the will of the people.

The discussion for days, months and years to come will focus on whether the Recall and Initiative Act should be amended to exclude tax policy.  Should this historic event be repeatable in the area of tax policy?  Does the successful use of the law highlight the flaws in the law? Should the law be fixed? There will always be a segment of society who are negatively affected by a change to tax policy.  When asked whether they would like to pay more tax, people will instinctively say "NO". Is this the lesson to be learned today?

The United States debt debate foreshadows a future where people blessed by democracy will challenge government in terms of tax policy.  The Tea Party's loud and clear message was "No new taxes".  The British Columbia referendum results also are loud and clear.

Governments must listen to the electorate - that is the message that was received today.  The question is: How can the Government listen better and move forward without the overuse of recall legislation in the future?

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If you would like the Canada Revenue Agency to make a dict deposit of a refund or a rebate into you business account, you should complete a "Direct Deposit Request" form.  The downside of filling out such a form is that it becomes easier for the CRA to garnish a bank account if the business is assessed.  They will have the bank account information in their computer records.

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The most important document to study will be the "hard-to-read" Comprehensive Integrated Tax Coordination Agreement between British Columbia and the Government of Canada signed in November 2009 (called the CITCA by tax geeks).  The second most important document to read is the amendment letter to the CITCA signed in March 2010.  A review of the original Memorandum of Understanding may also be helpful. There will be other relevant documents that will be made public voluntarily and through access to information requests to the Government of Canada and the Government of British Columbia.  These documents will need to be reviewed carefully to determine the best plan to move forward.

What exactly will happen will happen in response to a "Yes" vote is yet to be determined.  What we know is that many will not like the plan.  The elimination of the Harmonized Sales Tax ("HST") in British Columbia will not happened immediately on August 26, 2011 if the "Yes" (anti-HST) vote is the successful side.  People celebrating at bars and restaurants will see HST on their bills after the announcement.

Businesses will need time to adjust.  This would be fair to the businesses who are, in reality, the tax collectors from the public.  The businesses will need to know what to do and the mechanisms to collect another tax (even if it is the British Columbia social services tax) will have to be put in place.  Businesses throughout Canada and not just British Columbia will need to adjust their record-keeping systems.  As with HST implementation, a change will involve a lot more work than just changing a tax rate in the computer.

Businesses inside and outside British Columbia will also need to register to collect the replacement tax.  The government will need to launch a new education campaign to communicate the obligations on businesses.  Also with the "To Do List', the government will need its own "To Do List", which will include setting a time line, passing legislation, education of the public (and duck as the tomatoes are thrown), hire people in the Consumer Taxation Branch, train the new employees, prepare policies and bulletins, talk with the Federal Government about repayment, enforcement and other process matters, etc.

If the "Yes" vote wins, GST registrants in British Columbia will still be required to charge, collect and remit HST when they sell to an HST province.  They will still be obligated under the Excise Tax Act (Canada) and regulations thereto to file a GST/HST returns in the future.  The HST Place of Supply Rules will still apply to certain transactions.  So, HST will not be elimniated fully under any change plan.

The rules relating to claiming refunds, rebates and credits under the HST tax system will need to be clarified for B.C. businesses.  There is a possibility that there may be a deadline set for amounts a business or consumer is entitled to receive from the Government of Canada.

If the HST is going to be eliminated, businesses who are registered for GST/HST purposes and entitled to claim input tax credits will take the opportunity to purchase goods and services before the change.  Those businesses that will have to pay unrecoverable provincial sales tax after the change may decide to undertake the expenditures at a time when they can recover HST by way of an input tax credit.  Businesses will take prudent steps to save money while the change occurs. 

Consumers, on the other hand, may delay purchases until after the change occurs when they are purchasing an exempt good, real property, intangible property or services that are not subject to provincial sales tax.  This will most negatively affect the real estate market and the service sector.  There will be transition rules for the change that will need to be developed and communicated.

Consumers outside the province of British Columbia may delay purchases of goods from British Columbia until after the change (or at least after the date of the announcement of the plan for the replacement tax).  The place of supply rules may change and give rise to opportunities to save sales tax.

In the meantime, the Government of British Columbia will undoubtedly talk about repayment of the monies received from the Government of Canada to implement the HST.  There will be talk of new taxes that were not in place in British Columbia before July 1, 2010.  As sure as night follows day, if the "yes" vote is the majority, the blame game will start.

We will continue to watch and report on this developing story - if it develops into a story.  Nothing much will happen if the "No" vote is the majority.

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When you would like to communicate with the Canada Revenue Agency that you have hired a lawyer, accountant or other consultant to represent your interests and that the CRA may communicate with your representative you must complete a Business Consent Form.  The Business Consent Form has been around for some time.  It was recently revised and newly released on August 12, 2011.

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Elections BC has announced that it will announce the British Columbia Harmonized Sales Tax (HST) referendum results on Friday - August 26, 2011.  We are on pins and needles waiting for the news of the results.

The Vancouver Sun has reported that "Provincial officials have said it could take up to two years to eliminate the HST if it is voted down in the referendum."  So, whatever the referendum results, the HST is not going away in BC soon.

What is remarkable to me (someone who has actually read the CITCA (the agreement between B.C. and the Federal Government concerning the HST), is all this talk about B.C. having to pay back the $1.6 million. It seems to me that if the HST was introduced in B.C. on July 1, 2010 and it is now August 2011 and it will take "up to 2 years to eliminate the HST, the HST may be in effect in BC until August 2013. 

BC is able under the CITCA to reduce the rate after two years and not breach the agreement.  So, under the CITCA, the rate can be reduced as of July 1, 2012.  What is wrong with reducing the rate to 0% in order to save the $1.6 Billion?

Also, I find it interesting that it takes less than one year to implement the HST, but twice as long to eliminate it.  This is one of those things that makes you go hmmmmmmmm?????

If the "Yes" vote wins, the province will need time to change the tax regime.  What I have said previously does not undermine that reality.  What I am commenting on is unreasonable statements by officials prior to the release of the result.  They may be trying to establish expectations.  If that is the case, the officials will fail if they continue to make statements that cannot withstand scrutiny.

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The Canada Revenue Agency ("CRA") is looking at the characterization of telecommunication services provided by non-traditional means (such as Voice over Internet Protocol).  Which HST place of supply rule applies depends on the characterization.  What is important to know if that if the CRA does not have all the answers yet (which, it does not), you may not be charging HST properly if you do not ask them.

The CRA has already received a few advance ruling requests.  The CRA has indicated that they are looking at 4 different requests that deal with VoIP services:

• supplies of VoIP services by a non-resident supplier where the communications are initiated outside Canada, but received in Canada;
• supplies of VoIP service calling plans for a flat fee;
• supplies of VoIP services provided where the communication are initiated in Canada, but received outside Canada; and
• supplies of VoIP services provided by a non-resident where the communications are initiated and received outside Canada, but routed through a server located in Canada.

If you have similar questions, it may be wise to request an advance GST/HST ruling from the CRA.  It may take time (possibly years) before the CRA issues a policy statement based on the rulings it provides.  It also may take months or years for the CRA to publish the rulings it gives to those who have asked.  If you would like to receive your own binding ruling (that may be handed to a CRA auditor when they visit a supplier or a recipient of VoIP services), you will need to submit your own ruling request.

The great benefit of GST/HST ruling requests is that it demonstrates due diligence in the event that the CRA disagrees with you in the end.  Acts that count as "due diligence" can relive a director from a director's liability claim.

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Many associations hold their conferences or meetings in Canada and/or HST provinces (Ontario, British Columbia, New Brunswick, Nova Scotia and Newfoundland/Labrador).  For example, the American Bar Association recently hosted their annual meeting in Toronto, Ontario.  I was asked whether a sponsorship by a U.S.-based law firm would be subject to harmonized sales tax ("HST").

The answer is "It all depends".  There are two HST place of supply rules that need to be considered.  In section 28 of Part I of the New Harmonized Value-Added Tax System Regulations, there is a specific rule for "location specific events" (like a conference).  For this rule to apply, there must be a direct connection between the service being performed (e.g. the service of giving recognition) by the supplier and the event (e.g., the conference).

Depending on what exact services are being provided in return for the sponsorship, the Canada Revenue Agency may not consider the connection to be direct.  An example of an indirect service is advertising services (such as including the firm's name in promotional materials).  If this is the case, the general place of supply rule would apply and not the specific rule relating to location specific events.  The general place of supply rules for services is found in section 13 of Part I of the New Harmonized Value-Added Tax System Regulations.

In the example given, the U.S. law firm (if it does not have any offices in Canada) would not receive a service in an HST province.  As a result, HST would not apply to the consideration paid for the sponsorship. 

If the U.S. law firm had offices in the united States and an office in Canada, an analysis of the location "most closely connected with the supply" would be required.

If the U.S. law firm received admission tickets to the event as part of the sponsorship package, it may be that the CRA would consider that the supplier provided a multiple supply and a portion of the consideration paid would be subject to HST.

For more information, please contact Cyndee Todgham Cherniak, a sales tax lawyer in Ontario at 416-760-8999.

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Store owners, artists, and others who sell goods often have difficult discussions with their customers about the addition of harmonized sales tax ("HST") to the invoice price.  If an artist in Alberta sells a painting to a buyer at their gallery in Alberta and the buyer leaves the gallery with the painting, then they charge 5% goods and services tax ("GST").  If an artist in Alberta sells a painting to a buyer in Alberta and is asked to ship that painting to Ontario, the artist must charge 13% HST (Ontario's rate) on the painting and the shipping and handling costs.

The retailer in Ontario has similar issues (albeit the reverse problem).  If an artist in Ontario sells a painting in Ontario and the buyer leaves the gallery with the painting, the artist must charge 13% HST.  If an artist in Ontario sells a painting to a buyer in Ontario and ships the painting to Alberta, the artist must charge 5% GST only (not 13% HST) on the painting and the shipping and handling.

You can substitute the word "artist" for "retailer" and "painting" for "goods".  Retailers have similar issues.  Customers often respond negatively about the lack of "customer service".  Customers often blame the messenger retailers who are forced to charge sales tax.  If the buyer in Ontario wants to leave the store in Ontario with the goods, it will cost them more in tax.  If the buyer wants to reduce the risk of never getting their purchased good (painting) or risk damage or loss during shipping, there is a perceived added cost (the HST). 

One seller of a puppy commented to me that a customer threatened to call the police on the basis that the retailer was holding the puppy hostage until the HST was paid in Ontario.  In this case, the buyer was from the United States and knew that he could not get the HST back if he took the puppy home in his car across the border.  He also did not want the puppy sent by courier (understandably so).  It cost more in gas than the HST for the breeder to drive the puppy to the border and give the puppy to the buyer before he left Canada.  There was no solution that worked perfectly for all.

An artist in Alberta also has commented to me that she has many difficult conversations with buyers.  The buyers often wrongly argue that the persons in Alberta are not supposed to be charging HST.  The reality is that any registrant for GST purposes in Alberta may have to charge HST in certain situations and risk an assessment by the Canada Revenue Agency if they do not charge, collect and remit HST when required. 

Retailers in Alberta, Saskatchewan, Manitoba, Quebec and Prince Edward Island (and the Northwest Territories, Yukon and Nunavut)  are bound to follow Canada's federal laws.  HST and GST is imposed under a federal law. The reality is that they may have to charge HST and must know the HST place of supply rules.  The serious reality is that buyers will, from time to time, argue with the retailer an walk away from the sale.  The HST will kill some transactions.

The same holds true for retailers in Ontairo, British Columbia, New Brunswick, Nova Scotia and Newfoundland/Labrador - I mention these provinces separately as they seem to be coping better.

The more retailers understand the HST rules (in any province or territory), the easier it will be to come up with public relations statements to win the customers heart in spite of the HST.

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I hope that the list of Canada's Courts of Appeal web-sites are helpful to you:

Federal Court of Appeal:http://decisions.fca-caf.gc.ca/en/index.html
Alberta: www.albertacourts.ab.ca
British Columbia: www.courts.gov.bc.ca
Manitoba: http://www.manitobacourts.mb.ca/
New Brunswick: http://www.gnb.ca/cour/03COA1/index-e.asp
Newfoundland: http://www.court.nl.ca/
Nova Scotia: www.courts.ns.ca/Appeals/index_ca.htm
Ontario: http://www.ontariocourts.on.ca/coa/en/
Prince Edward Island: http://www.gov.pe.ca/courts/
Quebec: http://www.jugements.qc.ca/
Saskatchewan: www.sasklawcourts.ca
Nunavut:http://www.nucj.ca/index.htm
Northwest Territories: www.justice.gov.nt.ca/dbtw-wpd/nwtjqbe.htm
Yukon: www.yukoncourts.ca
Court Martial Appeal Court: www.cmac-cacm.ca/index_e.html
 

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I was in Nova Scotia for the Canadian Bar Association convention in Halifax.  I could have stayed an extra few days to enjoy the scenery and experience a "vacation".  However, after days of seeing 15% HST charged on my bills, I decided to go home to Ontario.  I admit it, I was turned off by the higher HST rate.  I knew that many goods and services are less expensive in Nova Scotia, the higher tax rate still affected my decision - rightly or wrongly.

I went into the Baton Rouge restaurant on a Monday night at 8:30 PM and it was virtually empty.  It was almost empty on a nice night in the summer.  This is a symptom of a bigger problem. 

When I purchased goods in Nova Scotia, it bought things that I could not find in Ontario.  I bought super seven crystal (and other hard to find crystals) at Little Mysteries bookstore.  I bought a Buddha Board (I love this purchase) at a neat little store on Grafton. I did not buy clothes or goods that could be purchased at home.

Why am I writing this on my blog?  Someone needs to provide evidence that the higher HST rate affects decisions.  Nova Scotians commented to me that the economy is struggling in Nova Scotia and the recent times have been difficult for people. 

Nova Scotians - please provide comments so that your storied (good and bad) are available for your elected representatives to read.  Please use clean language as I do not publish words that I would not say to my Grandmother.

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During a GST/HST audit, you may be asked the Canada Revenue Agency ("CRA") auditor to sign a waiver.  A waiver authorizes the CRA to issue an assessment against the person who provided the waiver beyond the statutory limitation period.  As a result, one must be very careful when signing a waiver and should never do so lightly and without consideration of the negative effects of signing a waiver.

A new Waiver Form was released by the CRA on August 10, 2011.  There is a corresponding form that you should also know about - the Notice of Revocation of Waiver Form.

For more information about waivers, please see the posting on The HST Blog on January 3, 2011 entitled "A Waiver is NOT a Hand Gesture to a Canada Revenue Agency Auditor to Say Goodbye"

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I have a cute story to share.  At dinner last night, I was speaking with an American couple who had traveled to England in the 1980s. Prior to their trip, they researched bed & breakfasts and found the perfect spot to stay.  The bed & breakfast advertised that their prices were VAT included.  When the couple checked in, they asked the owner of the bed & breakfast "At what time is VAT?"  The owner of the B&B was confused by the question.  "What do you think is VAT?" she replied.  The husband responded "Victorian Afternoon Tea" - he was so excited that he was staying at a place that served Victorian Afternon Tea at no extra cost.  Instead of making an unfriendly remark to the mistaken American couple, the owners responded "Wouldn't that be nice?" and brought them some tea.

I am sharing this story because it may not occur to Canadians that people from other countries may not understand what is "GST" or "HST". What would people think if GST/HST was included?

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When I say "deregistered charities", I am referring to deregistration as a charity and not deregistration for GST/HST purposes.  If a charity that was a registered charity is deregistered as a charity (no longer considered to be a charity by the Canada Revenue Agency (CRA)), that entity will face a number of assessments, including GST/HST, if they do not make changes.

If an entity is deregistered as a charity, it would have to determine if the supplies made by it are exempt or taxable for GST/HST purposes.  Many supplies made by charities are exempt pursuant to Part V.1 of Schedule V to the Excise Tax Act (Canada).  A key pre-condition to the exemption may not be satisfied after deregistration.  If the exemption is no longer available and the entity does not change its invoicing (charging) practices, it may be assessed for failure to collect GST/HST.

If supplies become taxable (when a charity no longer makes exempt supplies), the entity must determine if they may claim input tax credits paid by it on business inputs.  The accountants and book-keepers will have to undertake a careful review.  If the entity does not claim input tax credits, it may lose its opportunity.

If an entity is deregistered as a charity, it would no longer be entitled to claim public service body rebates to recover otherwise unrecoverable GST/HST paid on business inputs.  Charities may claim a public service body rebate of 50% of the GST portion.  Depending on the province(s) in which a charity operates, the charity may claim another rebate for the PVAT (provincial) component.  If the charity is deregistered, a key pre-condition of entitlement will no longer apply.  If the entity does not change the way it completes its GST/HST return, it may be assessed to draw back rebates improperly claimed.

There are many other changes that may be experienced by specific charities.  For example, certain charities take advantage of the election in section 211 of the Excise Tax Act (Canada) and that benefit would no longer be available.  Certain volunteer reimbursements and allowance rules would not longer be available. Certain charities could deregister for GST/HST if they are below the small supplier threshold for charities. 

If the CRA is talking about deregistration of an entity as a charity, that entity needs to address the issues in that discussion.  If they ignore the CRA during the deregistration process and do not take steps to revisit all elements of charging GST/HST and taking advantage of entitlements, there may be costly assessments against the former charity and/or the directors of the charity.

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The deadline for filing British Columbia HST referedum ballots is Friday, August 5, 2011 at 4:30PM PST.  The ballot must be received by Elections British Columbia by the 4:30PM PST deadline.  If you plan to mail in your ballot, it may be too late (after August 2nd) to get it to Canada Post and have Canada Post deliver by snail mail on August 5th. Courier is another option (but who wants to spend the money?)

Results of the mail-in referendum vote are expected in late August or early September. British Columbians will go about their daily lives until the date of the announcemnt of the results.  What the people, businesses, finance officials, politicians, academics, economists and pundits will be interested in is the voter turnout numbers.  What if the vote is "Yes" but only 16% of the eligible voters in the province sent in their ballots? What if thousands of votes are left uncounted because Canada Post delivered the ballots after the 4:30PM deadline on August 5th?  

This will be a contest that will be watched less than the American Idol finale.  And, like last season, most will be indifferent to the winner.  The subsequent legal challnges may be interesting ....

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