issue of the Financial Post that about 85% of Canada’s top sixty firms, and more than half of the largest three hundred firms listed on the Toronto Stock Exchange, use some form of transfer pricing, possibly with the intent of transferring profits outside of Canada.
For example, a T-shirt costing $1 to make may be manufactured in a tax haven country and sold to a Canadian subsidiary for, say, $10 and then subsequently sold so that the $9 profit is earned outside Canada.
Therefore, CCRA has added 40 new auditors to the International Tax Department, bringing a total of 278, whose job it is to ensure that cross-border transfer pricing is correct and that profits are not being transferred outside of Canada. This is the “number 1” issue of CCRA’s International Taxation Department. Therefore, most accountants are advising clients to review their transfer pricing policies in light of this recent CCRA attention.
SORRY - NO ITC
In an August 26, 2002 Tax Court of Canada case, Alexander Nix Group Inc. purchased supplies from 864116 Ontario Ltd. (864). After being provided with a GST registration number from 864, the appellant paid $3,766 GST on $53,874 of services and then claimed the $3,766 input tax credits (ITCs). The registration number that 864 provided was the company’s original GST number but was invalid as it had been deregistered years earlier.
The Court denied the ITC. The primary reason was because it was deemed the appellant’s responsibility to obtain a valid GST registration number.
In December, 2002 CCRA released a number of Rulings that discuss GST on internet supplies to non-residents.
For example, Ruling No. 33017 (August 16, 2002) notes that job search videos which may be viewed by Canadians and non-residents are considered to be “made in Canada” and, therefore subject to GST. However, this may not be the case had access been limited to non-resident customers.
In another Ruling No. 32713, CCRA Ruled that GST must be charged by an internet radio station on fees received for advertising various musician services as this is considered to be supplied in Canada.
In another Ruling 32742, CCRA Ruled that digitized artwork available to residents and non-residents of Canada would be considered to be supplied in Canada.
KEEP THE INVOICES
One of the major reasons for GST reassessments is improper input tax credit documentation. CCRA GST auditors require proper invoices to support input tax credits. For example, if the input tax credit is supported merely by a credit card slip, and not the invoice, it may not be allowed. The source document should show the supplier’s GST registration number. This is not available on credit card receipts, bank statements, and cancelled cheques which, some clients, use as substantiation for their input tax credits.
REMITTING GST ON TAXABLE BENEFITS
GST must be remitted on an employee taxable benefit unless the benefit is zero-rated or tax exempt - such as the benefit on low-interest loans. Taxable benefits that are not exempt include automobile standby charges and operating expense
On June 12, 2002, CCRA issued its revised Voluntary Disclosure Program (VDP) including the introduction of a policy to make a “no-name” disclosure on Form VDP-1. The no-name disclosure does not identify the name of the taxpayer but should be complete and include all relevant information to permit the CCRA officer to review the situation.
The taxpayer would then proceed with a full disclosure by a negotiated deadline, or alternatively choose not to follow the Voluntary Disclosure process.
This Program is administered by CCRA’s Appeals Division.
DID YOU KNOW...
1.Financial Advice, Rates and Comparisons
If you want information on finances, this site contains several useful tools, including mortgage amortization calculators, mortgage rate comparisons(updated daily), rent vs. own calculators, retirement calculators, and many more.
(http://finance.canada.com/bin/putform?Type=Calculatoror go to http://finance.canada.com and click on the “calculators” button)
This website is hosted by CanWest Global Communications Corp. (National Post, Global TV etc.)
2.Canadian Retirement Income Calculator - https://srv260.hrdc-drhc.gc.ca/ or go to www.hrdc.gc.ca and search for “Canadian Retirement Income Calculator”.
Hosted by H.R.D.C., this calculator provides a forecast of annual pre-
2003 SECOND QUARTERISSUE NO. 62PAGE 6
Tax Tips & Traps