Chapter Four

Goods And Services Tax

(GST)
 Transaction Tax Concepts
Manufacturer

Wholesaler

Retailer

Customer

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Single Stage Transaction Tax –
Retail Sales Tax

 6% ($50,000) =
$3,000

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 Multi-Stage Transaction Tax -
VAT

 Manufacturer = 6% ($10,000) $ 600

 Wholesaler = 6% ($15,000) 900
 Retailer = 6% ($25,000) 1,500
$3,000

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 Multi-Stage Transaction Tax –
GST
 Manufacturer 6%($10,000) $ 600
 Wholesaler
– 6%($25,000) $1,500
– 6%($10,000) ( 600) 900
 Retailer
– 6%($50,000) $3,000
– 6%($25,000) ( 1,500) 1,500
 Total $3,000

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 Liability For GST

ITA 165(1) - ..every recipient of a taxable

supply made in Canada shall pay to her
majesty in right of Canada, tax in respect of
the supply calculated at the rate of 6% on
the value of the consideration for the supply.

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 Liability For GST

 The liability is on the

purchaser of the goods
and services.

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 The Concept Of Supply
 ETA 123 – “Supply”
means the provision of
property or a service in
any manner, including
sale, transfer, barter,
exchange license,
rental, lease, gift, or
disposition.

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 The Concept Of Supply
 Taxable Supplies
– Supplies made in the course of commercial
activity
 Includes
– Fully taxable at 6%
– Zero-rated
 taxable at 0%
 get input tax credits

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 The Concept Of Supply
 Commercial Activity
– In general: business carried on by a person, a
personal trust, or a partnership made up of
individuals
– Exclusions
 no expectation of profit
 exempt supplies
 employment services

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 Supply Categories
 Fully Taxable Supplies

– Full Tax And ITCs

– Examples
 Travel
 Clothing
 Restaurant Meals
 Electricians

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 Supply Categories
 Zero-Rated Supplies
– Tax At 0%, Full ITCs
– Examples
 Basic Groceries
 Prescription Drugs
 Exports
 Foreign Travel

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 Supply Categories
 Exempt Supplies
– No Tax, No ITCs
– Examples
 Health Care
 Used Residential
Housing
 Financial Services

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 Collection And Remittance Of GST
 Liability is on  Provider responsible
recipient of supply. for collection and
remittance

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Requirement To Register
 Individuals are required to
register if they are providing
taxable supplies in Canada.

 An exception for “small

suppliers”.

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 Small Suppliers Exemption
 Small Suppliers
Threshold
– <$30,000 per year in
taxable supplies
 May Voluntarily
Register
– may want input tax
credits.

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 Small Suppliers Exemption
 Last 4 Calendar Quarters
Test
– Over $30,000 on cumulative
basis

 Calendar Quarter
– Over $30,000 in a single
quarter

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 Input Tax Credits
 Costs Other Than Capital Costs
– No Matching
– Prorated For Taxable Usage
 ≥ 90% = All
 ≤ 10% = None

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 Input Tax Credits
 Capital Costs
– No Matching Or Allocation
– Real Property:
Pro Rate Based On
Commercial Usage
– Other:
 > 50% Commercial – 100%
 ≤ 50% Commercial - Nil

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 Input Tax Credits
 Restrictions On Certain Costs
– Club Dues
– 50% Meals And Entertainment
– Auto Costs > $30,000
– Reasonable In Circumstances

 Vendors Of Exempt Supplies

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GST And Accounting
 No Matching
 No Allocation
(Amortization, etc.)
 Some Deductions
Don’t Influence GST
(e.g., Wages, Interest)

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 Example
 GAAP Income Statement
Sales $6,700,000
Cost Of Sales ( 4,200,000)
Amortization Expense ( 1,400,000)
Salaries ( 500,000)
Other ( 200,000)
Total $ 400,000

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 Example (Continued)
 Other Information:
 Capital Expenditures
- $2,000,000 for a building (40% commercial)
- $1,000,000 for equipment (70% commercial)
 Purchases of goods for resale were $4,500,000
 Other Expenses of $200,000, related to fully taxable
supplies
 $5,000,000 of sales were fully taxable, the remainder
were exempt
 Ignore provincial sales taxes

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 Solution To Example
Sales (6%)($5,000,000) $300,000
Purchases (6%)($4,500,000) ( 270,000)
Other (6%)($200,000) ( 12,000)
Building
(6%)($2,000,000)(40%) ( 48,000)
Equipment
(6%)($1,000,000)(100%) ( 60,000)
GST Payable (Refund) ($ 90,000)

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Relief For Small Business
 Quick Method
– <$200,000 Taxable
Sales
– Collect Usual 6%
– Don’t Track ITCs,
except for capital
expenditures
– Apply Given % To GST
Sales
 Service – 3.3%/4.3%
 Retail - 1.2%/2.2%

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 Example
 Quarterly filing retail store has 1st quarter sales of
$125,000, resulting in GST included sales of $132,500. In
addition, there are $20,000 in capital expenditures.

– $30,000 @ 1.2% $ 360

– $102,500 @ 2.2% 2,255
– Capital Expenditures (6%)($20,000) ( 1,200)
– GST Payable $1,415

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