CO COVID 1 19: 8 8 Key GST/ T/HST ST Issues es Ro Rosem - - PowerPoint PPT Presentation

CO COVID 1 19: 8 8 Key GST/ T/HST ST Issues es

Ro Rosem emary An y Anderson son Terry B y Barnet nett Noa

• ah Sa

Sarna na

Presentation not intended to convey legal advice. Current as of June 3, 2020.

Ag Agend nda

1. 1. Strateg egic c consi sider erat ations s of defer erring g filing, p paymen ent o

• r both

2. 2. Back k in Busi siness: ess: Up Updat ate o e on CRA RA O Oper erat ations s 3. 3. Changes ges to Time L e Limits s – when en i is i s it st stat atute bar barred? 4. 4. Appeal eal D Deadlines es – 90 day 90 days f from w when en? 5. 5. Pros

• s a

and nd Cons Cons of

• f us

using B Bad D Debt r rul ules 6. 6. Deferring Com Commercia ial R l Rent nt – is t s the t e tax ax st still du due? e? 7. 7. GST/ ST/HST Tr T Trap – Conv Converting AirBn BnBs Bs to

• Lon
• ng-Ter

erm Re Rental als 8. 8. Impl plic ications of

• f sellin

ling onl

• nline – what

at t tax ax ap applies?

As of June 3, 2020

GST/HST Pa ST Paym yment ent D Deadl dline

As of June 3, 2020

Ta Tax Filing a ng and nd R Repor

• rting

ng

GST Filing:

• Reporting Deadlines were not changed;

BUT

• CRA has agreed not to impose penalties if filed by June 30th

GST Payment

• All payments due on or after March 8th, now due June 30th

As of June 3, 2020

Impl plicat cations

• More time to calculate adjustments to reduce liability
• Short term Interest Free loan

BUT

• Returns don’t go statute barred until they are filed

As of June 3, 2020

But ut don’

• n’t b

be late! e!

• Filing Penalties - failure to file triggers
• Interest at prime plus 4% compounding daily
• Can’t pay? Director’s liability?

As of June 3, 2020

Dir irector’s ’s L Lia iabili lity?

• CRA’s audit policy (pre-COVID 19)
• Directors are assessed automatically with limited exceptions
• ETA distinguishes between types of organizations
• Corporations
• Unincorporated Entities (for example, Registered Charities, Not for Profit’s)

As of June 3, 2020

Ag Agend nda

1. 1. Strateg egic c consi sider erat ations s of defer erring g filing, p paymen ent o

• r both

2. 2. Back k in Busi siness: ess: Up Updat ate o e on CRA RA O Oper erat ations s 3. 3. Changes ges to Time L e Limits s – when en i is i s it st stat atute bar barred? 4. 4. Appeal eal D Deadlines es – 90 day 90 days f from w when en? 5. 5. Pros

• s a

and nd Cons Cons of

• f us

using B Bad D Debt r rul ules 6. 6. Deferring Com Commercia ial R l Rent nt – is t s the t e tax ax st still du due? e? 7. 7. GST/ ST/HST Tr T Trap – Conv Converting AirBn BnBs Bs to

• Lon
• ng-Ter

erm Re Rental als 8. 8. Impl plic ications of

• f sellin

ling onl

• nline – what

at t tax ax ap applies?

As of June 3, 2020

CRA RA Operations

• ns

CRA’s COVID-19 BUSINESS CONTINUITY PLAN

• Increasing Operations – mostly online but with E-mail privileges!!
• Expected return: June 26th – at the earliest

As of June 3, 2020

CR CRA: Ba Back i in Bu Business

• Registrations: regular and non-resident registrations operational
• Authorizations: only if filed electronically
• Refunds: highest priority
• Collections: focus on hardship cases/ insolvency/ high risk

As of June 3, 2020

CR CRA: Ba Back i in Bu Business

• Returns: expect delays in processing paper: returns/elections
• Credit returns - electronic filing is MUCH faster
• Rulings: just starting back to work/ rulings sent to TSO’s handled

more quickly

• Ruling requests should be submitted through the portals

As of June 3, 2020

CR CRA: Ba Back i in Bu Business

• Audits:
• Auditors have limited ability to work remotely
• Taxpayer privacy a key concern
• CRA was granted special email privileges
• Some can call taxpayers/advisors but can’t leave messages so prefer email;
• Documents typically need to be submitted through the portal
• Generally looking at finishing audits that have started
• Timing is based on risk / suspected criminal activity has highest priority
• New audit activity primarily involves credit returns

As of June 3, 2020

Ag Agend nda

1. 1. Strateg egic c consi sider erat ations s of defer erring g filing, p paymen ent o

• r both

2. 2. Back k in Busi siness: ess: Up Updat ate o e on CRA RA O Oper erat ations s 3. 3. Changes ges to Time L e Limits s – when en i is i s it st stat atute bar barred? 4. 4. Appeal eal D Deadlines es – 90 day 90 days f from w when en? 5. 5. Pros

• s a

and nd Cons Cons of

• f us

using B Bad D Debt r rul ules 6. 6. Deferring Com Commercia ial R l Rent nt – is t s the t e tax ax st still du due? e? 7. 7. GST/ ST/HST Tr T Trap – Conv Converting AirBn BnBs Bs to

• Lon
• ng-Ter

erm Re Rental als 8. 8. Impl plic ications of

• f sellin

ling onl

• nline – what

at t tax ax ap applies?

As of June 3, 2020

Cha hanges ges to

• Limitation
• n Pe

Periods ds

• So you thought the GST/HST return went

statute barred during CRA shutdown??

• Normal reassessment period:
• 4 years from the later of the due date of the return and the date it is actually filed
• e.g. BuilderCo – self-supplied apartment block in Feb 2016
• GST/HST return for Feb. 2016 was statute-barred March 31, 2020?

…… not so fast

As of June 3, 2020

Time e Li Limits a s and O d Other er P Per eriods Ac Act (C (COVID-19) 9)

• Proposed legislation will give MNR

NR discretion to suspend or extend assessment limitation periods

• Suspension/extension can be for up to 6 months
• Order can be retroactive to March 13, 2020
• Instead of March 31, 2020,

Feb 2016 GST/HST return may not be statute-barred until Sept 30, 2020??

As of June 3, 2020

Time e Li Limits a s and O d Other er P Per eriods Ac Act ( (CO COVID-19) 9)

• Unclear whether extension will apply only to

limitation dates falling in the “Covid” period

• i.e. these deadlines are extended

OR

• Over the next four years – add on to every

GST/HST limitation calculation the days that were part of the “Covid” period in 2020

As of June 3, 2020

Ag Agend nda

1. 1. Strateg egic c consi sider erat ations s of defer erring g filing, p paymen ent o

• r both

2. 2. Back k in Busi siness: ess: Up Updat ate o e on CRA RA O Oper erat ations s 3. 3. Changes ges to Time L e Limits s – when en i is i s it st stat atute bar barred? 4. 4. Appeal eal D Deadlines es – 90 day 90 days f from w when en? 5. 5. Pros

• s a

and nd Cons Cons of

• f us

using B Bad D Debt r rul ules 6. 6. Deferring Com Commercia ial R l Rent nt – is t s the t e tax ax st still du due? e? 7. 7. GST/ ST/HST Tr T Trap – Conv Converting AirBn BnBs Bs to

• Lon
• ng-Ter

erm Re Rental als 8. 8. Impl plic ications of

• f sellin

ling onl

• nline – what

at t tax ax ap applies?

As of June 3, 2020

CRA Appe ppeal al Dead eadlines es

• Did 90-day GST/HST objection deadline fall after

March 18, 2020 when CRA closed down?

• For all objections due between March 18 and

June 2020, the CRA wi will trea eat t t the d dea eadline a ne as J June 3 ne 30, 2 2020.

• CRA will automatically allow the late filing of objections
• But you still can file objections today: online or by fax to the CRA

As of June 3, 2020

Ta Tax Cour

• urt Appea

eal Deadl dlines

• PROPOSED

ED: Tim ime L Lim imit its an and O Other P Perio iods A Act ( (Co Covid 19) 19)

• Law will suspend the counting of time in the 90 day

period for appealing to Tax Court

• March 13, 2020 through Sept 13, to be excluded
• e.g. CRA confirms assessment February 1, 2020
• appeal to Tax Court normally due May 1, 2020 (90th day)
• Extends appeal deadline by 185 days – e.g. to Nov 2, 2020
• Government can shorten the suspension period

As of June 3, 2020

Othe her D Deadl dlines nes?

• Currently, no suspensions/extensions proposed for :
• 2/4 year deadline for ITC claims
• 2/4 year limit for rebate claims (i.e. 2 years limit

for tax paid in error)

• Directors liability safety period
• i.e. if director resigns, CRA has two years to assess for under-remitted net

tax

• This deadline is not suspended

As of June 3, 2020

Ag Agend nda

1. 1. Strateg egic c consi sider erat ations s of defer erring g filing, p paymen ent o

• r both

2. 2. Back k in Busi siness: ess: Up Updat ate o e on CRA RA O Oper erat ations s 3. 3. Changes ges to Time L e Limits s – when en i is i s it st stat atute bar barred? 4. 4. Appeal eal D Deadlines es – 90 day 90 days f from w when en? 5. 5. Pros

• s a

and nd Cons Cons of

• f us

using B Bad D Debt r rul ules 6. 6. Deferring Com Commercia ial R l Rent nt – is t s the t e tax ax st still du due? e? 7. 7. GST/ ST/HST Tr T Trap – Conv Converting AirBn BnBs Bs to

• Lon
• ng-Ter

erm Re Rental als 8. 8. Impl plic ications of

• f sellin

ling onl

• nline – what

at t tax ax ap applies?

As of June 3, 2020

Bad ad D Debt R Relief – GST/HST ST

• GST/HST can comprise a significant portion of a business’

receivables

• ETA s. 231 allows business to deduct bad

debt GST/HST from net tax remittance when:

• debt is determined to be a bad debt
• debtor acts at arm’s length
• amount written off in accordance with GAAP
• If subsequent recovery – add back into net tax

As of June 3, 2020

Bad ad D Debt R Relief – GST/HST ST

• Is there a downside risk to being aggressive and deducting?
• Concern: is the debt bad or merely doubtful?
• A factor considered by the courts:
• “the general business conditions in the,

country, the community of the debtor, and in the debtor’s line of business;…”

• Downside: interest on short-paid remittance
• Gross negligence penalty? Seems unlikely given the bleak outlook

As of June 3, 2020

Ag Agend nda

1. 1. Strateg egic c consi sider erat ations s of defer erring g filing, p paymen ent o

• r both

2. 2. Back k in Busi siness: ess: Up Updat ate o e on CRA RA O Oper erat ations s 3. 3. Changes ges to Time L e Limits s – when en i is i s it st stat atute bar barred? 4. 4. Appeal eal D Deadlines es – 90 day 90 days f from w when en? 5. 5. Pros

• s a

and nd Cons Cons of

• f us

using B Bad D Debt r rul ules 6. 6. Deferring Com Commercia ial R l Rent nt – is t s the t e tax ax st still du due? e? 7. 7. GST/ ST/HST Tr T Trap – Conv Converting AirBn BnBs Bs to

• Lon
• ng-Ter

erm Re Rental als 8. 8. Impl plic ications of

• f sellin

ling onl

• nline – what

at t tax ax ap applies?

As of June 3, 2020

Defer erring ng C Com

• mmer

ercial Rent nt

• Since the start of the crisis, commercial rent deferral

arrangements have been common

• Like many recent stopgap efforts, they have often been done

without considering the GST/HST implications

As of June 3, 2020

Defer erring ng C Com

• mmer

ercial Rent nt

• The tax on rent is payable on the earlier of (a) the day the rent is

due under the lease; + (b) the day it is paid

• If the lease is unchanged, the landlord has to report + remit all

tax collectible, even if it wasn’t actually collected

• Relief would only be available once the tax is

paid or when it is written off as a bad debt

As of June 3, 2020

Defer erring ng C Com

• mmer

ercial Rent nt

• So what’s to be done?
• Written rent deferral agreements can amend when or how much rent is due 

this postpones when or how much tax must be reported + remitted

• See the Canada Emergency Commercial Rent Assistance (CECRA) program 

governed by written rent reduction agreement + forgivable loan

• Alternatively, the parties can agree to be flexible on the payment of rent,

provided that the tax is paid by the landlord’s reporting/remittance deadline

As of June 3, 2020

Ag Agend nda

1. 1. Strateg egic c consi sider erat ations s of defer erring g filing, p paymen ent o

• r both

2. 2. Back k in Busi siness: ess: Up Updat ate o e on CRA RA O Oper erat ations s 3. 3. Changes ges to Time L e Limits s – when en i is i s it st stat atute bar barred? 4. 4. Appeal eal D Deadlines es – 90 day 90 days f from w when en? 5. 5. Pros

• s a

and nd Cons Cons of

• f us

using B Bad D Debt r rul ules 6. 6. Deferring Com Commercia ial R l Rent nt – is t s the t e tax ax st still du due? e? 7. 7. GST/ ST/HST Tr T Trap – Conv Converting AirBn BnBs Bs to

• Lon
• ng-Ter

erm Re Rental als 8. 8. Impl plic ications of

• f sellin

ling onl

• nline – what

at t tax ax ap applies?

As of June 3, 2020

Conv

• nver

erting ng Ai Airbnb nbs to L

• Long
• ng-

Ter erm R Ren entals

• April 1: Airbnb announced that it would facilitate more listings

for long-term rentals

• Following a spike in average stay lengths
• Then reports emerged of downtown Toronto rents plunging by

6% and a 25% increase in listings

• Due to short-term rental units flooding the long-term market

As of June 3, 2020

Conv

• nver

erting ng Ai Airbnb nbs to L

• Long
• ng-

Ter erm R Ren entals

• Given the covid-related challenges to owners of short-term

rental units, what tax reason could there be for avoiding long- term rentals?

• How could there be a GST/HST trap in making

that shift, if the units continue to be capital property used to earn business income?

As of June 3, 2020

Conv

• nver

erting ng Ai Airbnb nbs to L

• Long
• ng-

Ter erm R Ren entals

• Th

The b e bottom lin line e  once

• nce an

an owne

• wner conv

converts ts an an Airbn rbnb t b to l

• long
• ng-

term re rental tals, t the hey are are l liabl able for for GST/H /HST bas based on

• n the

he FMV FMV of

• f the

he uni unit (ss. 190, 190, 191) 191)

• Why?
• Owner is deemed to have “substantially renovated” when they begin

to use realty as a “residential complex” (i.e. gen. housing unit intended for periods of continuous use by tenant of 60 days or more)

• GST/HST rules often are not parallel to income tax rules

As of June 3, 2020

Conv

• nver

erting ng Ai Airbnb nbs to L

• Long
• ng-

Ter erm R Ren entals

• For a unit the owner bought from a developer:
• This isn’t capped at the ITC they claimed on the purchase!
• If the value somehow dropped since the time of purchase, their

liability is bumped up to the amount of the ITC (s. 206/207)

• If the owner agreed to a 2 month rental + then reverts to

shorter-term, they might possibly avoid the problem

As of June 3, 2020

Ag Agend nda

1. 1. Strateg egic c consi sider erat ations s of defer erring g filing, p paymen ent o

• r both

2. 2. Back k in Busi siness: ess: Up Updat ate o e on CRA RA O Oper erat ations s 3. 3. Changes ges to Time L e Limits s – when en i is i s it st stat atute bar barred? 4. 4. Appeal eal D Deadlines es – 90 day 90 days f from w when en? 5. 5. Pros

• s a

and nd Cons Cons of

• f us

using B Bad D Debt r rul ules 6. 6. Deferring Com Commercia ial R l Rent nt – is t s the t e tax ax st still du due? e? 7. 7. GST/ ST/HST Tr T Trap – Conv Converting AirBn BnBs Bs to

• Lon
• ng-Ter

erm Re Rental als 8. 8. Impl plic ications of

• f sellin

ling onl

• nline – what

at t tax ax ap applies?

As of June 3, 2020

Selling g Remot

• tely?

y?

• GST/HST: What tax? What Rate?
• PST/ QST: Do I need to register and collect?

As of June 3, 2020

Selling g thr hrough

• ugh Pl

Platforms

As of June 3, 2020

Plat atforms s

• Platform will typically only collect tax based on instructions from the

seller

• Seller is responsible for:
• Registration
• Determining what tax is collected
• Reporting and remitting the tax

As of June 3, 2020

Sales es Ta Tax Ra Rates es ( (By Pr Provi

• vinc

nce) e)

As of June 3, 2020

Place ace of Su Suppl pply

GST/HST is a destination based tax

• Destination based on deeming rules
• Schedule IX, Part II:
• Tangible Personal Property, Real Property, Freight Transportation,

Telecommunications

• New Harmonized Value-added Tax Regulations, Part 1:
• Intangible property and Services

Tax Information Bulletin: B-103- useful examples and flow charts

As of June 3, 2020

Place ace of Su Suppl pply

Goods

• Sales
• Based on where goods delivered or made available to recipient
• Delivery based on contract or Sale of Goods legislation
• Deemed delivery if Seller ships by mail or courier or arranges for

shipment on behalf of purchaser

As of June 3, 2020

Place ace of Su Suppl pply

IPP and Services

• General Rule: home or business address in Canada of recipient
• Exceptions:
• Use of IPP is limited to particular location
• Relates to property

As of June 3, 2020

QST ST Regi egist strat ation

Two registration systems as of Jan. 1/ 19:

• ‘regular’ – similar to GST/HST: based on same factors used by CRA
• ‘simplified’ – registration based on sales to consumers in Quebec/ no

right of refund for QST paid by supplier Simplified system applies to sales of digital products and services

As of June 3, 2020

QST ST Regi egist strat ation

• “Regular Registration” system
• Applies to sellers of goods who solicit orders to be delivered in Quebec to

a consumer

• Watch: legislation has been in place since 2009
• Simplified Registration
• Applies to digital services and IPP other than sales through platforms
• Threshold: $30,000 in any 12 month period

As of June 3, 2020

BC PST ST R Regi egist strat ation

Loca cated in d in Canada da? Extended registration required if the seller does all ll of the following:

• 1. Solicits persons in BC for orders;
• 2. Accepts purchase orders originating in BC;
• 2. Sells or provides the TPP to a person in BC; and
• 3. Causes the goods to be delivered in BC

Or holds inventory in BC at the time the TPP is sold or provided

As of June 3, 2020

Best Pr Pract ctices es: G Goods

• ods
• Place of Sale?
• Clear documents as to where title and risk of loss transfer to customer
• Avoid confusing or inconsistent delivery terms
• Clarify who is paying for delivery on documents
• If not registered, do not transfer title or arrange delivery to customer in

that province

As of June 3, 2020

Sa Sales s Tax x Regi egist strat ation

• Implications for sellers
• Other legislation: consumer protection, contract terms, product

liability, environmental levies, etc.

• Other taxes: income tax
• Set up and ongoing compliance costs
• Complexity of legislation and its application
• With the exception of GST/HST, no protection for errors made by

sellers

As of June 3, 2020

Ag Agend nda

1. 1. Strateg egic c consi sider erat ations s of defer erring g filing, p paymen ent o

• r both

2. 2. Back k in Busi siness: ess: Up Updat ate o e on CRA RA O Oper erat ations s 3. 3. Changes ges to Time L e Limits s – when en i is i s it st stat atute bar barred? 4. 4. Appeal eal D Deadlines es – 90 day 90 days f from w when en? 5. 5. Pros

• s a

and nd Cons Cons of

• f us

using B Bad D Debt r rul ules 6. 6. Deferring Com Commercia ial R l Rent nt – is t s the t e tax ax st still du due? e? 7. 7. GST/ ST/HST Tr T Trap – Conv Converting AirBn BnBs Bs to

• Lon
• ng-Ter

erm Re Rental als 8. 8. Impl plic ications of

• f sellin

ling onl

• nline – what

at t tax ax ap applies?

As of June 3, 2020

Que uestions

• ns?

As of June 3, 2020

48

Rosemary Anderson 604-602-4279 rjanderson@thor.ca Terry Barnett 604-602-4271 tbarnett@thor.ca Noah Sarna 416-864-1072 nsarna@thor.ca

181 181 Bay y Stre reet, Suite 3300 3300 To Toro ronto, ON, ON, C Canada M5J 5J 2T3 2T3 416 416-864-0829 Phone Phone 416 416-864-1106 Fax @ThorTax 595 595 Burra rrard Stre reet, Suite 2700 2700 Va Vancouve ver, B BC, Canada V7X V7X 1J 1J2 604 604-689-1261 Phone Phone 604 604-688-4711 Fax

49

thor hor.ca ca