When it comes to indirect tax, clients have a wide range of questions. What is it? What opportunities are available? Am I missing out on anything I could be gaining? Do I have obligations I’m failing to meet that could result in penalties? In addition to answering these questions, the advisors at Baker Tilly Windsor can address all the minutiae that factor into this highly complex, specialized, often‑overlooked area, so our clients have nothing to worry about. This article offers an introductory overview of indirect tax to help you get started and meet your obligations.
What is indirect tax?
Whether you’re a resident Canadian corporation or a non‑resident selling into Canada, if you have a business, indirect tax is going to touch every transaction you do in Canada. This includes the federal, value‑added tax system, which is the GST/HST, QST in Quebec and the provincial sales taxes in British Columbia, Manitoba and Saskatchewan. The majority of the goods and services sold inside Canada are taxable for GST/HST or QST in Quebec. There are a few more exemptions related to PST, but for the most part, goods and services are also subject to this tax. With this likely indirect tax obligation in mind, be sure to investigate your registration and compliance requirements.
Good advice
Whether you are operating a resident Canadian entity or a non‑resident entity, you should consult with an indirect tax advisor as soon as you begin to operate a business. (If you start with a different advisor and it doesn’t work out, we’re still happy to step in and serve as your one‑stop shop.) At this early point, we can determine your registration requirements by developing an understanding of your business, what you’re selling into Canada and how you are selling it. If you skip this step and get your compliance obligations wrong, there could be hefty penalties to pay. It makes working with an indirect tax advisor an indisputably wise idea.
The registration process
If you determine you do not need to register, nothing further needs to happen, but the onus is on you to make the correct determination. Once you know your registration requirements, you have to work through the complexities of the registration process. Fortunately, we can navigate these challenges for you and prepare any required filings. With the support of our team, your only real obligation is to track your sales, expenses and other accounting data. That will take care of the compliance side of this, but the advisory piece is more significant, and it’s where we can be most helpful.
Charging and collecting tax
Once you are registered for one or all of the sales taxes, you’re obliged to charge and collect tax appropriately on your sales to Canadian customers. This is important when it comes to sales tax because there’s no blanket rate. GST varies between five and 15 per cent across Canada. When you’re registered for QST, you have to consider the 9.975 per cent QST in Quebec, and then there are the PST provinces. Once you are registered as a vendor for one or all of these sales taxes, the onus is on you to ensure you are accurately determining your place of supply, which is where you are supplying goods and services to your Canadian customers, ensuring you collect the appropriate amount of sales tax. Beyond that, you’re typically required to report sales on a monthly, quarterly or annual basis, and any late‑filed returns will be subject to penalties and interest.
Ongoing support
In many cases, clients come to us thinking they only need support with registration and compliance, but as they grow comfortable with us as their trusted advisors, they start coming to us with all their questions. It results in a more ongoing collaboration. Whether you want to change your business model, offer a new product line, move assets from one entity to another or do a reorganization, our support can evolve into a broader advisory role, assisting with the entirety of your Canadian operation. While we can simply fill out applications and submit them to the Canada Revenue Agency, we have a wealth of additional knowledge that can help your business maneuver and grow.
Keeping your business healthy
When you have a problem with your health, you don’t make a diagnosis yourself, you go to a doctor. At Baker Tilly Windsor, we see our indirect tax expertise in the same way. Our specialized knowledge allows us to achieve better outcomes for businesses than could be achieved without us. We know what questions to ask, and we know where all the traps are. We’ve seen the most common mistakes, and we know exactly how to make sure you don’t make them.
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