November 23, 2024
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Tax Tips
Suppliers of vehicles and large equipment often assist customers in obtaining financing to enable the purchase of their products. In the early days of the Goods and Services Tax (the "GST"), the commission or referral fee from the lending institution was considered to be an exempt "financial service", under the category of “arranging for” the financial service of a loan. However, the GST/HST legislation has been amended. The meaning of "agreeing to provide or arranging for" a financial service has been qualified to exclude many actions that are undertaken by the supplier in relation to the financing. The amendment was passed into law in 2010 and the CRA is now targeting those who receive payments from lenders for audit and assessment where no HST was charged. Services that are preparatory to the provision of a financial service by a third party, including "collecting, collating or providing information, or market research, product design, document preparation, document processing, customer assistance, promotional or advertising service or a similar service" are now considered to be taxable and not exempt of GST/HST. Persons receiving payments (or other consideration) for helping their customers obtain purchase loans should review carefully whether they are treating this revenue correctly for GST/HST purposes. If they believe their services are exempt, they need to document each transaction in a way that the CRA will accept. Suppliers of large tangible property, such as trucks, cars or heavy equipment, should verify that the actions they take in respect of obtaining loans for their customers are truly exempt of HST and they have the adequate documentation in every instance to support this position if the CRA should audit them. If the supplier cannot support the position that it is making an exempt supply based on the new legislation, it must begin to charge GST/HST on fees received from lenders, in cash or in kind, so that it is compliant with the new legislation on a go-forward basis. A supplier that is clearly offside of the amended legislation may want to make a voluntary disclosure to the CRA to report GST/HST that was collectible, to eliminate penalties that might arise in an audit assessment. There are a number of large associations that are combining resources to fight overzealous assessments by CRA auditors, so it is always important to consult industry groups to see if the supplier may join in a combined effort to reduce the negative impact of these changes in the law. TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes. |