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Canadian Indirect Tax News, October (09-9)



October 2009

Harmonized sales tax – Top 10 questions to think about
CBSA aggressively expanding tax base

Harmonized sales tax – Top 10 questions to think about

With all this talk about the harmonized sales tax (HST) in Ontario and British Columbia, it can be overwhelming to prioritize the risk areas, system changes, and other implementation requirements for your business. Here are the Top 10 questions to help guide your thoughts:

  1. How will HST impact your cash flow and budget for next year?
  2. Does your system have the capability to keep track of restricted input tax credits separately?
  3. Will the timing of system and process change implementation conflict with year-end or quarterly reporting?
  4. What types of provincial sales tax (PST) capabilities need to be retained in the system after HST implementation?
  5. What will happen with existing contracts that straddle the pre- and post-HST effective date?
  6. How will transitional rules apply to goods/services purchased before July 1, 2010 and delivered after that date?
  7. Is it possible to defer or restructure PST taxable purchases of equipment to avoid paying PST and take advantage of HST input tax credits?
  8. Are wording changes required for brochures, flyers, advertisements, catalogues, signs, coupons and rebate forms?
  9. What type of training will the accounting or tax department need to be prepared for HST?
  10. When should pricing be adjusted in order to pass on PST savings to customers?

For more comprehensive articles on the impact of HST, please see Deloitte’s point of view on this topic.

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CBSA aggressively expanding tax base

Did you know that management or administrative fees you pay to your foreign vendor may need to be included in the dutiable tax base when you import goods into Canada?

The Canada Border Services Agency (CBSA) recently issued its policy on the dutiable status of certain payments made by importers to their foreign vendors. Aimed squarely at related-party importers, the CBSA’s position is that “post-importation payments” must be added to the dutiable value of imported merchandise (subject to certain exceptions) irrespective of whether such payments are made in respect of imported goods.  These include payments made by an importer, directly or indirectly, to its merchandise vendors for, among others, research and development, management and administration, and marketing or promotion.

Given the CBSA’s statement that it will presume all payments sent by a purchaser to a foreign vendor are dutiable, importers are strongly advised to initiate an assessment of these payments in order to determine potential exposures.

The CBSA will consider exempting certain payments from the application of its policy. These include arm’s length management and administration fees that are justified and rendered for the operation of a business in Canada and certain financial transactions such as qualifying dividends and payments related to financing activities (e.g., issuance, assumption, redemption, or repayment of a debt, etc.).

For additional information, please contact one of the following customs professionals:

Bob Sacco, Toronto
Heather Missouri, Toronto
Frank Caruso, Toronto
Lisa Zajko, Vancouver

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