Let’s face it – The United States does not have a value-added tax and does not have a federal sales tax. The Canadian goods and services tax (“GST”) and harmonized sales tax (“HST”) are foreign in more ways than one. With the expansion of Internet based sales into Canada, we are seeing a lot of U.S. companies making many GST/HST mistakes selling into Canada – mistakes that, quite frankly – should not happen if they have obtained advice from a GST/HST lawyer or accountant. However, we are also seeing that companies saw an opportunity for exponential sales growth (selling into Canada) and failed to ask the questions thinking that GST/HST is not that difficult. In some cases, U.S.based consultants (who do not know Canadian GST/HST very well) have given incorrect advice. We are seeing very large assessments where the company has been very successful selling to Canadians. The larger the volume of sales, the more costly the mistakes.
When we run a diagnostic for a U.S. company (that is, we come in and review what is being done), we find mistakes. Some mistakes are bigger than others. Are you making any of the following mistakes?:
- If you are delivering goods to your customers in Canada and are responsible for customs clearance, you may have to register for GST/HST purposes and collect GST/HST on each sale (or should have done so a while ago).
- If you have registered for GST/HST purposes and file GST/HST returns, but report GST paid to the Canada Border Services Agency as “GST collected” (you are not sure how to fill out the GST/HST return), you are doing it wrong.
- If you have registered for GST/HST purposes and file GST/HST returns, but you report GST paid to the Canada Border Services Agency as “GST Adjustments”(you are not sure how to fill out the GST/HST return), you are doing it wrong.
- If you pay GST to the Canada Border Services Agency and never have to remit any GST/HST with your GST/HST return, you might be making a big mistake or you may be losing money on your sales into Canada (most US companies selling goods into Canada normally are in a net GST/HST remittable position).
- If you are collecting GST/HST from customers and not filing GST/HST returns with the Canada Revenue Agency, you are not living up to your obligations.
- If you pay GST/HST to the Canada Border Services Agency and are not claiming input tax credits, you may be entitled to receive money.
- If you pay GST/HST to your customs broker and are not claiming input tax credits, you may be entitled to receive money.
- If you pay GST/HST to your shipper (e.g., UPS) and are not claiming input tax credits, you may be entitled to receive money.
- If you pay GST/HST to a Canadian warehouse and are not claiming input tax credits, you may be entitled to receive money.
- If your customs broker had you register for a GST number (and an import number) and you have never done anything, you probably have a problem.
- If you charge the same GST/HST rate for sales into every Canadian province, you are making a mistake (some provinces are harmonized and some are not and the rates are different).
- If you think that paying GST at the border is all that is required, you may be wrong.
- If you do not receive invoices and claim input tax credits based on wire transfers and cheques, the CRA will deny those input tax credits if they audit you (i.e., there are Input Tax Credit Regulations that set out what information is required on an invoice to receive an input tax credit)
- If your accounting software records USD and you report GST/HST collected and input tax credits in USD rather than Canadian dollars, you are making a mistake.
- If you have never looked at whether your invoices are in Canadian dollars or USD, you may have a problem (and should go look).
- If you make sales through a US company, but claim input tax credits in a Canadian subsidiary, you are making an error if there is a disconnect.
If you spot any mistakes that you are making and would like to discuss with us a GST/HST diagnostic (in order to avoid a costly assessment by the Canada Revenue Agency or claim found input tax credits), please call Cyndee Todgham Cherniak at 416-307-4168. Please refer to www.lexsage.com for more information about GST/HST.