Développements récents et questions d intérêt en taxes à la consommation

Transcription

1 Développements récents et questions d intérêt en taxes à la consommation Fred Purkey Nicolas X. Cloutier 23 octobre 2013

2 Tax Paid in Error Overpaid QST? Paid QST by mistake on an exempt supply? Revenue Québec thanks you for the gift, but will deny your input tax credits because in their view it was not "tax", and might not return the overpayment. Generally, you have two years to claim a refund of tax paid in error, but Revenue Québec has four years to deny an input tax credit. In the past, the practice was "if in doubt, then pay the tax and get a refund", but this is riskier now: be more careful that tax is actually owing. 2

3 Credit Notes Issued a new invoice to replace or reduce an old one? Unless you issue a "credit note" for the old invoice, Revenue Québec will want the QST on the full amount of both invoices. Revenue Québec is concerned about people double claiming input tax credits. So, if you are cancelling or reducing an already issued invoice, issue a credit note. "This invoice 1235 cancels and replaces invoice 1234" not good enough according to Revenue Québec, must say "Credit Note" on the document and have all the other prescribed information. 3

4 Credit Notes 4

5 Credit Notes 5

6 Credit Notes 6

7 Damage and Contract Termination Payments GST Section 182 / QST 318: - If as a consequence of the breach, modification or termination of an agreement for the making of a taxable supply (other than a zero-rated supply) of property or a service in Canada by a registrant to a person, an amount is paid or forfeited to the registrant otherwise than as consideration for the supply, or a debt or other obligation of the registrant is reduced or extinguished without payment on account of the debt or obligation, the person is deemed to have paid GST. 7

8 Damage and Contract Termination Payments So, if an amount is paid by a recipient (buyer or lessee) to a supplier (seller or lessor) as damages, whether by Court order or on a settlement, and it is for a contract that would have otherwise been subject to GST/QST, then the amount paid is deemed to be GST/QST included. 8

9 Damage and Contract Termination Payments There are many situations when a damage or compensation payment is not subject to GST section 182 / QST 318 because it does not meet one or more of the conditions in the subsection, such as: - no prior agreement for a taxable supply existed between the parties; - the payment or forfeiture is made by a supplier to a recipient of the original supply; - the original supply was not made by a registrant; - the payment is actually additional consideration for the original supply. 9

10 Damage and Contract Termination Payments The deemed included amount is: - 5/105 of the payment or 13/113 or similar appropriate fraction in an HST province; / for QST, so combined GST/QST / The purchaser should be able to claim an input tax credit for this amount if the purchaser was acquiring the original supply in a commercial activity. This rule does not apply to payments by a supplier to a recipient, but such payments might otherwise be subject to regular GST/QST. 10

11 Damage and Contract Termination Payments So, if you are receiving a payment, take into account that part of it may have to be remitted to the CRA: - If the taxpayer wants $100 of damages in his hands after GST and QST, then the negotiated payment amount should be basically $115 and not $100; - If this is overlooked, then of the $100 received, basically $13 has to be remitted as GST/QST, leaving only $87 in the hands of the recipient. If you are the one making such a payment, include in your calculations the fact that part could be refunded to you as an input tax credit. This would also apply to a payment to cancel on a prospective basis a contract or lease. 11

12 Self-Assessment on Purchase of Real Estate Does the vendor have to be registered? - The vendor usually would be registered if it owns commercial real estate, but not always. - The issue is the documentation requirements to claim input tax credits mandate the GST/QST number of the supplier, and so in theory the CRA / Revenue Québec could deny the offsetting input tax credit on a self-assessment. 12

13 Self-Assessment: Vendor Registration CRA administratively will allow the buyer to self-assess: - "Thus, in the case of a self-assessment of tax on real property this general requirement will be varied in recognition of the circumstance under the authority of subsection 169(5) which allows the Minister to waive the documentary requirements provided the tax payable has been accounted for by the recipient in the return in which it must be reported." It is still better, and safer, to confirm the registration number of the vendor if possible and not have to rely on this administrative position. 13

14 Self-Assessment: Option in Québec For GST and QST in the province of Québec, the supply of an option to purchase real property is considered a supply of intangible personal property (or incorporeal movable property) and not of real property. Since the option is not real property in Québec, the acquiror cannot self-assess the tax on the supply of an option, so the grantor has to actually collect and remit. Revenue Québec administers both the GST and the QST in Québec, following civil law principles. 14

15 Deposit For purposes of determining when tax is payable, a deposit is an amount given by a recipient as security for the performance of a future obligation. A deposit may or may not be refundable. A deposit is not treated as consideration paid for a supply until the supplier applies the deposit as consideration for the supply. So the tax is triggered when the deposit amount is applied to the purchase. 15

16 Deposit: Forfeited If a deposit on the proposed supply of property is forfeited, then the erstwhile vendor is required to remit a portion of the forfeited deposit as GST/QST as per the s.182 / 318 damages rule discussed previously: - but the entity which would have been the purchaser (and who has now lost the deposit money) may be able to claim a refund of that remitted amount, if it is otherwise able to claim input tax credits. 16

17 Joint Venture Where there are multiple co-owners of a property, each one is supposed to account for their share of GST/QST and input tax credits. Can be administratively difficult, so often the co-owners will want to appoint one entity to account for GST/QST (and claim input tax credits) for the property: the "operator" (which can be a participant or a third party manager). This is done with the joint venture election. All the co-owners, and the operator, need to be registered for GST/QST. Only certain limited activities qualify for joint venture treatment, such as real estate. 17

18 Joint Venture On the initial purchase of real estate the co-owners self-assess the tax, even if on a going forward basis the operator of the joint venture will account for sales taxes on the property on behalf of the co-owners. Also, for a joint venture to be valid, there needs to be a written joint venture agreement (without any language that says this is not a joint venture ). Do not have a non-manager, non-participant (such as a nominee titleholder) as the "operator". 18

19 Commercial Rent: Property and Business Taxes Property and business taxes paid by the property owner to the municipality are generally not subject to GST/QST. The property owner may include in the lease rental an amount that represents a recovery of such taxes, either as part of the basic rent or as an additional rent in the lease agreement. This amount is part of the consideration for the rental of the property, even if the lessee pays the amount directly to the municipality. Since the lessee's payment is part of the consideration for a taxable supply, it is subject to GST/QST in the same way as the basic rent payable by the lessee. 19

20 Nominees Pursuant to section 169 of the Act, a registrant is entitled to claim input tax credits for GST paid or payable on the inputs to be consumed, used or supplied in the course of commercial activities. A nominee is not engaged in the commercial activity of the property, and is not entitled to claim input tax credits in respect of the property. Instead, it is the beneficial owners who are entitled to claim input tax credits for the GST/QST on expenses relating to their commercial activities. These expenses may be incurred by the nominee acting as their agent. 20

21 Nominees: Importations When assets are imported into Canada, there is GST charged at the border. To be able to claim an input tax credit, the importer needs to be registered. Also, CRA has taken the position that if the importer itself is not the beneficial owner of the assets, then the importer cannot claim an input tax credit. Consider having the beneficial owner itself register and claim the input tax credits, or have beneficial ownership of the assets pass to the importer before they cross the border. 21

22 Nominees: Self-Assessment There can be problems with nominees on the selfassessment process on the purchase of real estate, since if the beneficial owner is not registered then it cannot claim input tax credits. It is recommended to have both the nominee and beneficial owner registered, have the nominee earn a small fee, and have the beneficial owner account for GST/QST and input tax credits. In Québec, the approach is harsh, and a specific procedure is required for self-assessment on the purchase of real estate, even if both the nominee and the beneficial owner are registered. 22

23 Nominees: Québec - Acquisition Where commercial real property is being acquired using a nominee on behalf of the true beneficial acquirer, to ensure that the beneficial acquirer can self-assess the GST/QST (and thus have not to pay the sales tax at closing), Revenue Québec's latest position (as best we can understand it) is as follows: 1. Unregistered nominee who does not disclose to the vendor that it is acting as nominee = no self-assessment, nominee has to pay the tax, beneficial acquirer has to claim the input tax credits, so there can be a cash flow problem; 2. Unregistered or registered nominee who does disclose to the vendor that it is acting as nominee = self-assessment works, and is done by the beneficial acquirer; 23

24 Nominees: Québec - Acquisition 3. Registered nominee who does not disclose to the vendor that it is acting as nominee and uses its own registration number (so not the beneficial acquirer's number) = selfassessment only works if the existence of the nominee arrangement is disclosed to Revenue Québec along with a copy of the agreement, and the self-assessment is then done by the beneficial acquirer; 4. Registered nominee who does not disclose to the vendor that it is acting as nominee and either does not use its own registration number or does not reveal the existence of the nominee arrangement to Revenue Québec = no selfassessment, nominee has to pay the tax, beneficial acquirer has to claim the input tax credits, so there can be a cash flow problem. 24

25 Nominees: Québec - Acquisition So, basically the safest approach is to reveal the existence of the nominee-beneficial acquirer relationship to the vendor (for example, in writing a side letter). However, if for commercial reasons you want to hide who the true beneficial acquirer actually is, then register the nominee, use the nominee's numbers in the sale agreement, and send notice of this to Revenue Québec along with the nominee agreement. Note that Revenue Québec indicates that the nominee agreement must have been entered into on or before the acquisition of the property. They also indicate that "in order for a nominee agreement to be recognized for tax purposes, the mandator and the mandatary must disclose the existence of the agreement and reveal its content to Revenu Québec", but it is not clear if that needs to be done in all cases on a current basis, or only in the future if asked. 25

26 Nominees: Purchase of a Nomineeco There have been situations where a taxpayer has directly purchased beneficial ownership of real estate, plus purchased the shares of the nominee titleholder, and then later Revenue Québec assesses the nominee for denied ITCs/ITRs. Then the taxpayer has to try to get the previous owner to instead claim the refunds, get that money from Revenue Québec, and give the refunded amounts to the nomineeco so that it can pay the assessment. This can be difficult, if for example the previous owner was not registered, is insolvent, no longer exists, or just does not want to cooperate, plus there is a time limit to claim such refunds. There may be a concern that the previous owner (or its creditors) might try to keep the refunded money. Also, the refunds to the previous owner would not cover interest and penalties assessed against the nominee. So as part of the due diligence process, you may want to inquire as to whether the nominee is registered, and if it has been claiming ITCs/ITRs in respect of the property instead of the beneficial owner doing so. 26

27 QST "Harmonization" Effective as of January 1, Still have separate QST legislation. Different GST & QST registration numbers: - so if not registered for QST by mistake, no input tax refunds. No more QST on the price plus the GST, now just a straight rate of 9.975%; rate will be calculated on the price excluding GST: same effective combined rate of %. Place of supply rules also harmonized. 27

28 Harmonization: Financial Services Before 2013, financial services were zero-rated in Québec. - So, no need to charge QST on financial services. - But suppliers of financial services could get input tax refunds on QST they incurred in carrying on their business. - Applied to holding companies with investments in marketable securities. As of January 1, 2013, financial services are generally exempt as in the federal tax system. - So still no need to charge QST on financial services. - But no more input tax refunds for entities in the financial services business, including holdcos. 28

29 Harmonization: ITRs for Large Corporations Currently, "phantom" QST section restricts the ability of large corporations to claim ITRs on certain kinds of inputs (energy, telecommunications, etc.): - "Phantom" because it was repealed, but the repeal was deferred and so the provision remains in effect; - If you look in the current QST legislation, that section is not there. Within five years, Québec undertakes to phase out its restrictions on input tax refunds for large businesses in equal annual proportions during a phase-out period of no more than three years. 29

30 End of HST in British Columbia Effective April 1, 2013, the 12% HST will no longer apply in British Columbia: - Instead, as of that date, the 5% GST will apply; PLUS - British Columbia s provincial sales tax (PST) will be re-implemented effective April 1, 2013 at a general tax rate of 7%. PST is an old-style sales tax system. PST will generally apply to: - the purchase or lease of new or used goods; - goods brought into BC for use in BC; - the purchase of most services to goods (e.g., vehicle maintenance, furniture assembly, computer repair); - the purchase of telecommunication services including internet access, nonbasic cable, non-residential telephone services, cell phone use, satellite services and facsimile services; and - the purchase of legal services. 30

31 End of HST in British Columbia The PST exemptions include: - all food for human consumption (e.g. basic groceries and prepared food such as restaurant meals); - most services (e.g. personal services such as haircuts, dry cleaning, funeral services); - admissions and memberships; - bicycles; - newspapers and magazines; - real property (residential housing or commercial real estate); - admissions and memberships; - professional services (other than legal services); - transportation fares (e.g., bus, train, ferry, airline). You will need to apply for a new PST registration number, your old number will not work. 31

32 Portrait de pratique 5 contribuables 147 millions de dollars de cotisations 3 non-résidents et 2 résidents Cotisés par l ARC et l ARQ Questions techniques 1 allégation de «connivence» v

33 Sujets abordés CTI / RTI - Documentation - Connivence v «Acquéreur» et prête-noms Importation - Importer pour quoi faire? - Inscription rétroactive - Consignataire et connivence v

34 Sujets abordés Approche - Distinctions entre l ARC et l ARQ - Les 10 recours sont insuffisants - Nouvelles idées 34

35 Documentation Le problème Le règlement 35

36 Connivence v. 1.0 Toujours d actualité - Décisions récentes La riposte - Rapport de vérification Services rendus Par qui? Intensité du lien entre le fournisseur et l acquéreur Absence d avantage et de stratagème - Vérification raisonnable et bonne foi 36

37 Prête-noms en immobilier Cour canadienne de l impôt 21 novembre

38 Rabais-volume Rabais-volume incluant la TPS sur des fournitures détaxées Contribuable réclame les CTI. Les rabais-volume constituent des contreparties pour des services de promotion des fournitures sujets. Les CTI sont accordés. 38

39 Importation Les quatre critères prévus à la LTA Importer pour fourniture, utiliser, consommer : - de facto; - de jure. Le lieu de la fourniture et les nouveaux Incoterms 39

40 Importation Les certificats de livraison au consignataire : - les retour des problèmes de connivence, cette fois en v. 2.0; - le fardeau de la preuve en pratique et en réalité. La différence entre «registrant» et «registered» 40

41 Inscription rétroactive Les dispositions législatives sont claires : - l ARQ ne peut pas inscrire unilatéralement et rétroactivement. Toutefois, la réalité est différente. 41

42 Les dix recours de base Supérieurs Ombudsman et Protecteur du citoyen Renvoi quelque part Allégement Décret de remise Opposition Contrôle judiciaire Appel de cotisation Responsabilité civile «Rectification» 42

43 43

44 Une approche différente 44

45 Les nouvelles idées et l ARQ 45

46 Merci! Thank you! Fred Purkey Nicolas X. Cloutier