When should you self-assess for GST and why?

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Grant  Gilmour

Grant Gilmour

Facts:
Normally whenever a Canadian Corporation purchases goods, they are charged GST on the goods or services supplied if the goods are subject to GST. However, there are occasions when goods and services are brought into British Columbia from outside of Canada. In these cases the GST is often not charged because the supplier is unaware of the Canada’s tax regime and has no reason to charge GST. In these situations Canadian corporations may be required to self-assess the GST.
Discussion:
The main reason why self-assessment is required is to prevent taxpayers who are engaged in non-commercial activities from avoiding paying GST on purchased services and goods for use in Canada by acquiring these goods and services outside Canada. For example, a corporation purchases a vehicle that is predominately used for personal purposes, if no GST has been paid on that vehicle because it was bought in Washington State, then there may be a risk that no GST is assessed on the personal tax benefit of the employee who is using that vehicle.
In many cases the process of self-assessing GST is a paper pushing exercise, and no actual cash is paid to CRA. This is because the corporation reports the amount of GST being self-assessed as collected and then reports the same amount of GST as an input tax credit (ITC). As the two amounts cancel each other out, there is no net cash impact on the corporation. However, to claim an ITC on the goods imported they have to be used for commercial activities. No self-assessment is required for goods brought into BC that are purchased for consumption, use or for exclusive supply (over 90%) in the course of commercial activities. Failure to self-assess may result in penalties and interest.
Recommendation:
If you have questions about reporting sales taxes please contact us at Gilmour Knotts Chartered Accountants.

Grant Gilmour B.SC. MBA, CPA, CA is the International Tax Partner of Gilmour Knotts Chartered Accountant. To connect with Grant visit: www.gilmour.ca