Yes, businesses must comply with a number of tax disclosure requirements. We continue to see Canada Revenue Agency (CRA) auditors vigorously challenge GST/HST registrants by imposing documentation requirements under subsection 169(4) of the Excise Duty Act (LTE). One of the fundamental principles underlying the GST/HST is that no taxes should be included in the costs of real property and services that a registrant uses in the course of his or her business activity. However, registrants must comply with the general rules for claiming input tax credits (ITCs) in subsection 169(1) before they can claim ITCs on their GST/HST returns. This is the first entry in a two-part discussion on documentation requirements for the use of input tax credits (ITCs) for Goods and Services Tax and Harmonized Value Added Tax (GST/HST) purposes. To begin with, I focus on what exactly is needed to substantiate an ITC claim. Note that this blog was written assuming that the company has already taken the necessary steps to ensure that it is allowed to claim ICT in connection with its business activities. A GST/HST registered corporation is eligible for ICT for tax paid on business inputs used in commercial activities. The company must keep the appropriate documentation to support the claim. However, documentation requirements are onerous and businesses are often caught off guard during a GST/HST audit, with ITCs being rejected due to unexpected problems with invoices. Mandatory information The Excise Duty Act (LTE) prescribes a list of information that must appear on an invoice for the recipient of that delivery to claim ICT. The required information differs depending on the dollar value of the invoice.
For small quantities, the requirement is less strict and vice versa. As a company that claims ICT, it is important to ensure that all the necessary information is present on the invoice. The required information is summarized as follows: For invoices over $150, all of the above information must be provided, as well as: (ii) if an invoice is issued for delivery or deliveries, the date of the invoice, The issue in the appeal was whether the CFI met the documentation requirements under subsection 169(4) of the ECA and the Regulations Providing IBCs with the prepaid rent during the relevant period (para. 25). It is important to ensure that an invoice is issued to the correct recipient. In general, the recipient of a delivery is the one who is liable under an agreement for the payment of the consideration for the delivery. A common audit problem occurs when Company A receives an invoice for a delivery for the business activities of Company B, a subsidiary. Company B pays the invoice and claims the ITC, but since the invoice is issued to Company A, which is required to pay the consideration, ITC Company B may be refused during the audit.
There are three ways to resolve this issue: 1) The vendor must correct the recipient`s name and reissue the invoice; (2) Company A must deliver the goods to Company B and issue an invoice; or 3) ensure that there is an agency contract in which Company A acts as the authorized representative of Company B. Learn more about the new reporting rules for federal trusts that would increase disclosure requirements and what you can do to prepare for them. If your business wants to claim an ITC, it is important to track all GST/HST paid for business-related purchases or business-related expenses. It is also important to keep all receipts, invoices, etc. to secure your claims. If the credit rating agency wants to review your expenses, it will ask you for all the relevant documents. If you do not provide the correct documents, the agency can reject your application with the ITAs and leave you with a tax bill. For a variety of reasons, the credit rating agency may request documents in support of the sales and GST/HST collected in addition to the purchase invoices and general ledger (G/L) details of the ICT claimed. When preparing the documents to be submitted, make sure that they are complete and meet all the requirements to avoid rejection of the ITC. Documentary information or evidence need not be contained in a single document. Especially in the case of written agreements and contracts, it is not uncommon for primary documentation to be supplemented with additional documents.
For example, a service contract may specify details about the supplier, recipient, and terms of payment, but the consideration and the tax paid or payable can only be determined and documented periodically on separate invoices. Both the written agreement and the invoice are required to meet the documentary requirements to claim an ITC. The credit rating agency is not in the habit of asking for additional information that can support ITC`s claims, so make sure the filings contain all the required documentary information. For invoices between $30 and $149.99, you must provide the information listed above, as well as: The 9. In June 2022, the Tax Court of Canada (« TCC ») allowed the CFI Financing Trust`s (« CFI ») appeal of the pre-tax credits (« ITCs ») it required in advance for rent paid in connection with the securitization of car dealership leases. The dispute arose when the Canada Revenue Agency (« CRA ») rejected CFI`s ICT applications because it found that the CFI had not met the minimum documentation requirements under subsection 169(4) of the Excise Duty Act (the « ETA »). Invoice date or, if no invoice is issued, date of payment or payment of the tax Yes, it is possible to issue invoices electronically. However, the invoice, alone or in combination with another eligible document or other eligible documents, shall contain the information necessary for the beneficiary to benefit from the input tax credit. Businesses are required to meet certain electronic document requirements. Is it possible for the supplier to issue an invoice (i.e.
self-billing)? In an earlier indirect tax alert dated October 25, 2011, entitled Input Tax Credits and Documentation, Chantal A. Guilmette reviewed the documentary information required for certain dollar thresholds (www.collinsbarrow.com/en/cbn/publications/input-tax-credits-and-documentation). Here are some of the documentary information requirements that appear to have become audit issues or areas that the credit rating agency tends to question: Learn about the requirements and rules that apply to indirect taxes in Canada. If the supplier charges GST/HST and the total amount paid or payable for delivery is $30 or more, the Supplier must include its GST/HST registration number on the supporting documentation. The recipient purchasing the delivery is not entitled to claim an ITC for delivery if an incorrect or incorrect GST/HST registration number is provided. If an auditor discovers an invoice without the required GST/HST registration number, a reasonable period of time is usually allowed to receive this information from the supplier. If the supplier is no longer in business and, as a result, the recipient is unable to obtain the GST/HST registration number, the TCC will be rejected. This Decision also recognises the validity of the computerised accounts provided by the consignee or his administrative agent in order to meet the minimum ITC documentation requirements. Indication of the status of each supply where the invoice includes both taxable and exempt services STC accepted the position of the CFI and considered that the term `form` should be given a broad meaning (paragraph 48). TCC noted that the use of the word « includes » in the regulations establishes a non-exhaustive list of documents available in the prescribed form (paragraph 37). As long as a document contains the information required by section 3 of the Regulations, it is available in the prescribed form. That interpretation is consistent with Article 169(4) etA, according to which the evidence submitted in respect of the ITC`s application must be presented in a form which `enables the amount of the [ITC] to be determined`.
In addition, in reviewing the credit rating agency`s previous public statements, STC noted that the Rating Board had long considered that the word « form » should be of great importance (para. 42). For example, the credit rating agency found that reverse invoicing – which comes from the recipient and not from the provider – can meet the requirements for the use of ICTs, provided that they contain the necessary information (paragraph 44). As the CTC has observed, if the credit rating agency`s position in the present case is correct, it means that its previous public position on reverse invoicing is therefore invalid (paragraph 45). In examining the credit rating agency`s IPR, it first concluded that the rent paid in advance constituted a tax-exempt service of a « financial service » and therefore did not allow the CFI`s claims to the ITCs. The Court of First Instance appealed against the rating agency`s assessment. Finally, the credit rating agency acknowledged that the supplies were taxable, but nevertheless did not grant ITC`s claims because the documents submitted by the Court of First Instance would not comply with the minimum requirements of Article 169(4) of the ETA and the rules on input tax credits (GST/HST) (the « Rules »). Another common audit issue occurs when an owner purchases property on behalf of a business and the invoice is issued to the owner in person. The CRA becomes very strict when conducting audits and refuses ITAs claimed by the company when the documents identify the owner as the recipient.
One solution is to reimburse the owner by the company, but this leads to additional paperwork and auditors are not likely to have these backdated expense statements.
