Indirect taxes. Basic concepts. First Nations of Quebec

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1 Indirect taxes Basic concepts First Nations of Quebec Aboriginal Taxation Conference September 4, 2013

2 Disclaimer This document is designed exclusively for training purposes and under no circumstances shall be distributed in any way without the authorization of the presenter. Furthermore, the information presented herein are a summary and should not be interpreted as an official or unofficial measure issued by tax authorities. Furthermore, please note that information expressed in this document is mainly based on current legislations. Hence, should any new changes be introduced, such information would no longer represent the position of tax authorities. Finally, please note that the translation of this presentation has not been revised by Deloitte and consequently, some of the terminology used may be subject to different interpretation. 2 First Nations of Quebec /Indirect taxes 2013

3 Agenda Introduction Basic concepts Aspects specific to aboriginal and aboriginal bands Types of supply (provision of goods and services) Input tax credit Time of taxation Offset value Administration 3 First Nations of Quebec /Indirect taxes 2013

4 Introduction

5 How GST works Taxable sales x Times applicable tax rate Minus tax paid on purchases made as part of Business activity (Input tax credit) Tax payable (If the result is positive) Reimbursement (If the result is negative) 5 First Nations of Quebec /Indirect taxes 2013

6 Harmonized sale s tax (HST) Replaces the GST in participating provinces New-Brunswick; Nova-Scotia; Newfoundland and Labrador; Prince Edward Island (HST introduced on April 1 st 2013); Ontario. The HST is composed of two elements Federal portion (5%) Provincial portion (variable by province) HST rate = federal portion + provincial portion 6 First Nations of Quebec /Indirect taxes 2013

7 New Quebec PST Regime Quebec was the first province to adopt an on added value tax. Quebec PST has maintained specific features which are different from the GST. Financial services Restrictions for large businesses On January 1, 2013, a new PST regime came into effect in order to ensure greater harmonization between Quebec PST and the GST. Which means: Maintenance of two separate taxes, but the tax on tax was abolished (PST went from 9.5% to 9.975% as of January 1, 2013); The end of restrictions to big companies by 2021; Financial services will be exempted from PST starting in First Nations of Quebec /Indirect taxes 2013

8 New PST Regime Calculating PST 3 decimals In accounting systems: 3 decimals are mandatory In cash registers (points of sale) 2 decimals are authorized only if the type cash register used cannot accommodate 3 decimals 1% penalty for miscalculations of PST 8 First Nations of Quebec /Indirect taxes 2013

9 New Quebec PST Regime The federal and Quebec governments Starting on April 1, 2013, exemptions on purchases made by the governments of Canada and Quebec and their departments will be abolished Pay attention to all taxes included clause Public sector entities that receive financial assistance from the governments of Quebec and Canada must analyze the taxable or tax exempt status on delivery of goods and services to the governments Some companies will have to review their cash flow requirements in order to support tax remittances that have not been collected 9 First Nations of Quebec /Indirect taxes 2013

10 Basic concepts

11 General tax rule The GST is payable by the person making a taxable purchase on purchases in Canada from a person exercising a business activity. Furthermore, the purchaser may obtain an input tax credit (ITC): If the person is engaged in business activities; When he is registered; and When the good or service purchased is purchased for a business activity. 11 First Nations of Quebec /Indirect taxes 2013

12 Aspects specific to Aboriginals and Aboriginal bands

13 Sales to aboriginal persons The Indian Act: Tax relief on the personal property of an aboriginal citizen living on a reserve The basic conditions are established in the administrative policy governing GST/HST for Indians: Certificate of Indian status Goods delivered to a reserve Services rendered entirely on a reserve 13 First Nations of Quebec /Indirect taxes 2013

14 Sales made to Aboriginals Only individuals who are Registered Indians will be entitled to tax reductions The following are excluded Métis Inuits Indians from the United-States Business entity under Indian control Reductions are not applicable to the territories or reserves of a First Nation that has implemented a First Nations Goods and Services Tax (FNGST) At the present time, no First Nations of Quebec have implemented the FNGST; Revenu Québec may now administer the FNGST for the First Nations of Quebec. 14 First Nations of Quebec /Indirect taxes 2013 Samson Bélair/Deloitte & Touche s.e.n.c.r.l. et ses sociétés affiliées.

15 Sales to Indian bands Indian bands mandated by the band, which are not incorporated Tax exemptions: Purchase of goods delivered on the reserve (proof of delivery must be kept by the vendor) Services acquired on a reserve Services on property located in a reserve Services acquired off reserve, but required for band management activities 15 First Nations of Quebec /Indirect taxes 2013

16 Sales to Indian bands Entities mandated by a band and that are incorporated or registered Tax exemptions: Purchase of products delivered on reserve and required for band management activities Services performed on reserve and required for band management activities 16 First Nations of Quebec /Indirect taxes 2013

17 Business located on reserve Businesses located on reserve must register for the GST and QST (unless the business is considered to be a small supplier) Inclusions: Business operated by an Indian Business belonging to a first nation or to one of its members Business held by a legal entity Business operated by a partnership Small supplier limit $30,000 $50,000 for a public services organization 17 First Nations of Quebec /Indirect taxes 2013

18 Businesses is located on reserve Small supplier limit (continued) Inclusions: Income earned worldwide on a taxable sale or provision of goods and services, including tax free sales and sales admissible for tax relief executed on reserve to Indians, Indian bands or entities mandated by a band. 18 First Nations of Quebec /Indirect taxes 2013

19 Businesses located on reserve or off reserve If the sale is to Indians: Required receipt must be kept in order to be eligible for tax relief If the sale is to non Indians: GST and QST must be collected Stores located in remote areas located off the reserve Possibility to obtain tax relief for Indians in certain circumstances, when major sales are made to Indians, Indian bands and entities mandated by a band 19 First Nations of Quebec /Indirect taxes 2013

20 Types of supply

21 Types of provision Types of provision GST ITC (1) Taxable 5% Yes Tax free 0% Yes Exempt Exempt No (1) Input tax credit 21 First Nations of Quebec /Indirect taxes 2013

22 Unique features of HST Types of provisions HST ITC (1) Taxable Rate set by the province Yes Tax free 0% Yes Exempt Exempt No (1) In Ontario and in British-Columbia, there are restrictions for large businesses for certain types of provisions (similar to those under QST). These measures are temporary. 22 First Nations of Quebec /Indirect taxes 2013

23 Distinctive features of the QST Types of provisions QST ITR (1) (2) Taxable 9.975% (3) Yes Tax free 0% Yes Exemption Exemption No (1) Input tax reimbursement (2) Restrictions for large businesses concerning certain provisions (3) 7.5% until December 31, 2010 and 8.5% until December 31, 2011 and 9.5% until December 31, 2012 (on tax including GST) 23 First Nations of Quebec /Indirect taxes 2013

24 Income tax credit (ITC)

25 ITC General rule In general, registered participants may claim under the ITC, any GST paid on the purchase of goods or services used as part of their business activities. In order to keep the presentation simple, all examples will be based on a 5% GST rate 25 First Nations of Quebec /Indirect taxes 2013

26 Example Opco Purchases and expenses for the month of March Date Description Amount (without GST) GST paid March 5 Insurance $150 March 7 Salaries $1,000 March 10 Supplies $200 $10 March 18 Merchandises $2,000 $100 March 20 Publicity $500 $25 March 21 Salaries $1,000 March 27 Utilities $200 $10 March 31 Rent $1,500 $75 Total $6,550 $ First Nations of Quebec /Indirect taxes 2013

27 Prorata calculation Registered participants who purchase both taxable and tax Exempt provisions must provide the breakdown of their purchases in order to determine the proportion used for taxable purchases, which will determine the level of ITC to be claimed. The method used to make the breakdown must be reasonable. 27 First Nations of Quebec /Indirect taxes 2013

28 General rule required as part of business activities % used for business activities ITC Capital expenditures (moveable goods, except automobiles) 50% > 50% NIL 100% Other goods and services, including buildings 10% >10% and < 90% 90% NIL % utilisation 100% 28 First Nations of Quebec /Indirect taxes 2013

29 General rule Restrictions: Certain types of expenses are not eligible to claim the ITC, such as: Personal livelihood costs; Club memberships; 50% of certain representation expenses; and The cost of an automobile surpassing $30,000. (Financial institutions and public service organizations are governed under special rules) 29 First Nations of Quebec /Indirect taxes 2013

30 The notion of small and medium (SME) and big businesses (for purposes of QST and HST in Ontario) A registered participant is deemed to be an SME throughout the fiscal year if taxable and tax free provisions do not exceed 10M dollars during the fiscal year. To be included in the calculation of this limit: Taxable and tax free provisions of partners; Exports; and The provision of goods and services are performed without offset when a choice is made for this purpose. Not to be included in the calculation of the limit: Financial services (for example: dividends, interests) and Sale of property. 30 First Nations of Quebec /Indirect taxes 2013

31 Documentation required Less than $30 Amount of invoice Between $30 And $150 More than $150 Name of vendor X X X Date of invoice X X X Total offset X X X GST imputed or included X X GST registration number X X Name of purchaser Terms of sale Description of goods or services X X X 31 First Nations of Quebec /Indirect taxes 2013

32 Time of taxation

33 General rule The GST is payable at the earliest date between the day when offset is paid or when the offset falls due. The offset of a taxable provision of goods or services is deemed due the first day in terms of: Date invoice is issued; Date appearing on the invoice; The date the invoice would have been issued had there been no unjustified delay; or Date of payment set out in a written agreement. The is an exception for lease payments because the date set out in the lease contract takes precedence over the invoice, where applicable. 33 First Nations of Quebec /Indirect taxes 2013

34 General rule Partial offset The GST is payable on a partial offset on the first date: of the day when partial payment is made; or the day when it falls due. 34 First Nations of Quebec /Indirect taxes 2013

35 General rule Rule of precedence The time of taxation can never be later than the last day of the month following the month in which any of the following situations occurred: Sale of any tangible moveable property Date of delivery or transfer of ownership. Consignment sale of any tangible moveable property Date on which the consigner delivers the property to another person or date when the good or property is acquired. Building construction, renovation or improvement contract Date when work is scheduled to be terminated (90% or greater). Services, ongoing provision of an intangible moveable asset No rule of precedence. 35 First Nations of Quebec /Indirect taxes 2013

36 Offset value

37 General principle The offset value of a provision is deemed to correspond: If the offset is provided as an amount of money, to this amount If not, to the fair market value 37 First Nations of Quebec /Indirect taxes 2013

38 General principle However, when the provision of a good or service is made: no charge or for a value lower than fair market value; between related party; and The person who acquire the good or service to consume it, to use it or to supply it exclusively (90% or more) as part of his business activity, is not a registered participant. The supplier is deemed to have provided the good or service for an offset value equal to fair market value and must remit the tax in accordance with the calculation of the fair market value. 38 First Nations of Quebec /Indirect taxes 2013

39 General principle Exchange of goods and services (BARTER) When a good or a service is supplied or exchange for another good or service The value of the offset is equal to the fair market value of the good of service 39 First Nations of Quebec /Indirect taxes 2013

40 Administration

41 Reporting periods Reported period and choice (1) Value of annual taxable sales and revenue (2) Reporting period Choice Greater than $6 million Monthly Nil Greater than $1,500,000 up to $6 million Quarterly Monthly $1,500,000 or less Annually Monthly or quarterly (1) The registered participant must make payment through a financial institution when the GST/QST payable is greater than or equal to $50,000 (2) Excluding exports, but including sales by partners 41 First Nations of Quebec /Indirect taxes 2013

42 Reporting Periods When does a registered participant have to file the tax report? For monthly or quarterly reports: No later than the last day of the month following the period covered by the report period. For annual reports: Within three months following the end of the reporting period. The registered participants who have taxable provisions greater than $1.5 M must produce their reports electronically. 42 First Nations of Quebec /Indirect taxes 2013

43 Quick accounting method Eligibility Registered company whose total sales is less and $200,000 (GST included). The threshold is applicable for reporting periods beginning after With some exceptions (example: accountants and lawyers) How it works Taxes must be collected on taxable sales in the same way as a normal methodology. A prescribed percentage is paid based on taxable sales: Merchandise resale (GST: 1.8%, QST: 3.4%) Services (GST: 3.6%, QST: 6.6%) 43 First Nations of Quebec /Indirect taxes 2013

44 Quick calculation method How does it work (continued) No ITC or ITR on purchases of goods or services ITC and ITR are admissible of capital purchases Choice will depend on whether this method if advantageous Easy method to calculate and administer 44 First Nations of Quebec /Indirect taxes 2013

45 Indirect Taxes Specific Taxes on Gas and Tobacco First Nations of Quebec Aboriginal Taxation Conference September 4, 2013

46 Disclaimer This document is designed exclusively for training purposes and under no circumstances shall be distributed in any way without the authorization of the presenter. Furthermore, the information presented herein are a summary and should not be interpreted as an official or unofficial measure issued by tax authorities. Furthermore, please note that information expressed in this document is mainly based on current legislations. Hence, should any new changes be introduced, such information would no longer represent the position of tax authorities. Finally, please note that the translation of this presentation has not been revised by Deloitte and consequently, some of the terminology used may be subject to different interpretation. 46 First Nations of Quebec /Indirect taxes 2013

47 Tax on Fuel Federal Excise Tax Quebec Fuel Tax

48 Tax on Fuel Federal Excise Tax Unleaded gas $0.10 $ per litre Leaded gas $0.11 per litre Diesel fuel $0.04 per litre Fuel used as heating oil is exempt The tax is included in the fuel purchase price It can generally not be reclaimed Partial possibility of reimbursement: To produce electricity for purposes other than travel Charitable organizations, amateur sport associations, handicapped individuals 48 First Nations of Quebec/Specific Taxes on Gas and Tobacco

49 Tax on Fuel Quebec Fuel tax Applies to fuel purchases at the following rates in force since April 1, 2013: Gas: $ per litre Uncolored heating fuel: $ per litre Rate has been increased in specific regions: Metropolitan Transportation Agency + $0.03 per litre Gaspésie-Iles-de-la-Madeleine + $0.01 per litre Discounts have been granted to specific and remote areas Colored heating fuel (untaxed) may be used for purposes other than fueling a propulsive vehicle (ex: generator) 49 First Nations of Quebec/Specific Taxes on Gas and Tobacco

50 Tax on Fuel Quebec Fuel tax (continued) Possibility of reimbursement : When used for forestry, mining and agricultural activities Deadline for claim limited to one year. Propulsive vehicles equipped with auxiliary equipment powered by the same motor (ex: mechanical shovel, loaders). The rates of partial reimbursement are established according to the characteristics of each vehicle and vary from 20% to 70%. A record of consumption must be kept for each vehicle Deadline for claim one year Fuel purchased by a band council (if there is no exemption at purchase). Deadline for claim four years. 50 First Nations of Quebec/Specific Taxes on Gas and Tobacco

51 Tax on Fuel Quebec Fuel Tax (continued) Possibility of reimbursement (continued) : Purchases by an individual Aboriginal (not a company or entity) of fuel delivered to the reserve by a non reserve body (ex: Aboriginal business person) An application may be made under the Act respecting tax administration Deadline for claim four years 51 First Nations of Quebec/Specific Taxes on Gas and Tobacco

52 Tax on Fuel Program for Exemption of Quebec Fuel Tax for Aboriginal Individuals New regime has been in force since July 1, 2011 Fuel distribution company located on reserve Purchases by Aboriginals Purchases by band council or entity mandated by a band Tax reduction at time of sale Retail distributor must maintain records and detailed documentation proving eligibility of customers Retail distributor may be entitled to a tax exemption on purchases from a designated fuel supplier according a percentage set by Revenu Québec. 52 First Nations of Quebec/Specific Taxes on Gas and Tobacco

53 Tax on Fuel Program for Exemption of Quebec Fuel Tax for Aboriginal Individuals Eligibility for exemption Individuals who hold green registration cards issued in 2012 (which replace the former blue cards which will no longer be accepted) Retail vendor must verify eligibility of the customer: Aboriginal: by comparing the registration card and the certificate of Indian status and photo identity of the customer Band council: obtain registration cards from the band council and obtain document proving that the fuel has been acquired for use by and for the band s management activities Additional verifications may be necessary for vendors using a paper solution rather than the electronic solution to manage this program (validity of the card) 53 First Nations of Quebec/Specific Taxes on Gas and Tobacco

54 Tax on Fuel Program for Exemption of Quebec Fuel Tax for Aboriginal Individuals Program management by retail vendor using the electronic solution The electronic solution provided under the program allows the retail vendor to verify the eligibility of the Aboriginal individual or band council to the program through use of a point of sale terminal (PST). The terminal consists, among other things, of a keypad, an optical reader and a screen and is used as a cash register. No further reporting is required after this type of validation. 54 First Nations of Quebec/Specific Taxes on Gas and Tobacco

55 Tax on Fuel Program for Exemption of Quebec Fuel Tax for Aboriginal Individuals Program management by retail vendor using a paper solution In addition to validating the eligibility of the customer, which is more time consuming, the retail vendor must fill out and obtain a signature of the record of retail sales to Aboriginals (CAZ-1020.A) The statement of monthly purchases by the retail vendor must also be prepared (CAZ-1020) Both documents must be produced monthly and will be used to determine the amount to be paid or the net reimbursement of fuel tax 55 First Nations of Quebec/Specific Taxes on Gas and Tobacco

56 Tax on Tobacco Products

57 Tax on Tobacco Specific Tax on Tobacco Products The increase of this tax came into effect on November 21, 2012 Inventory and tax increase remittance Main tobacco products Tax rate before November 21, 2012 Tax rate in effect November 21, 2012 Cigarettes $0.109 per cigarette $0.129 per cigarette Bulk tobacco $0.109 per gram $0.129 per gram Leaf tobacco $0.109 per gram $0.129 per gram Cigars 80% of the taxable price of each cigar 80% of the taxable price of each cigar 57 First Nations of Quebec/Specific Taxes on Gas and Tobacco

58 Tax on Tobacco Collection of Tobacco Tax Retail vendor must collect the tobacco tax on sales to the consumer If the consumer has a valid Indian card and purchases from an outlet located on reserve, he is entitled to an exemption of this tax. Retail vendor must fill out form TA 331 for each tobacco sale and obtain signature from customers All required information must appear on the form (which the vendor must submit) This form may be replaced by a point of sale electronic software as long as all required information appears 58 First Nations of Quebec/Specific Taxes on Gas and Tobacco

59 Tax on Tobacco Reimbursement of Tobacco Tax Retail vendor may claim the reimbursement of the tobacco tax paid on his purchases and for which his customers are entitled to a tax exemption (form TA 330) The original invoices of tobacco purchased from wholesaler are required Vendor must be able to demonstrate that tobacco tax exemptions were past on to Aboriginal consumer Deadline for claim four years 59 First Nations of Quebec/Specific Taxes on Gas and Tobacco

60 Contact Information For further information: Louis Amireault, CPA,CA Senior Director Taxation Indirect Taxes - Québec & Quebec regions Deloitte 100, Ave. Saint-Joseph sud, bureau 110, Alma (Québec) G8B 7A6, Canada Telephone: Fax: lamireault@deloitte.ca Member of First Nations Committee / Canadian Indirect Taxes Deloitte Christian Sénéchal, CPA,CA, M. Fisc. Partner Taxation ServiceDeloitte 110 8e Avenue, Dolbeau-Mistassini, Qc, G8L 1Y9, Canada Telephone: Fax: csenechal@deloitte.ca 60 First Nations of Quebec/Specific Taxes on Gas and Tobacco

61 Questions

62 Samson Bélair/Deloitte & Touche s.e.n.c.r.l. et ses sociétés affiliées.

TRANSITIONAL RULES FOR THE PRINCE EDWARD ISLAND HST RATE INCREASE

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