The Canada Revenue Agency has shifted from a generalized GST/HST compliance approach to a more specialized approach. According to their website, this change will “provide the CRA with the information it needs to identify and effectively address instances of non-compliance”. As a result, the below areas are where we have seen CRA audit activity in over the past year:
- Input Tax Credit (ITC) Documentation, or lack thereof - Please visit http://www.cra-arc.gc.ca/E/pub/gm/8-4/8-4-e.pdf for the CRA’s documentation requirements.
- ITC’s claimed in the wrong legal entity - Ensure your suppliers are billing the correct company in your corporate group.
- Failure to charge the appropriate GST/HST rate - Determining the place of supply for exports out of the province or country is key!
- Failure to remit the GST/HST collected – This does not always mean fraud, it can also result from a faulty accounting system.
- Clerical and reconciliation errors – Is your accounting system automated to remove the manual part of the GST/HST returns?
- Temporary recapture of ITC’s (RITC’s) not being accounted for in Ontario – If your corporate group is at or over the $10 Million RITC threshold amount, these rules will apply to restrict a portion of the provincial component of the HST ITC.
- Meal and entertainment – The 50% restriction of the ITC is not being applied.
- Not remitting GST/HST on taxable benefits – Ensure the GST/HST implications of these benefits are being considered.
- New Housing Rebates – Ensure you meet the requirements to claim, including that the house for which the rebate is claimed is your “primary place of residence”.
- Bare Trusts and Joint Ventures – See our January 2014 article on this issue.
We also continue to see that our clients are receiving desk audits when GST/HST returns are showing refunds. These audits normally constitute having to send the CRA your sales activity, GST/HST collected, and your 10 largest sales and purchase invoices for the period under review.
If you believe you have exposure in any of the areas indicated above, please contact us for a review of your current GST/HST policies and procedures.
Article written by: Greg Sawatsky, MAcc, CPA, CA