Impact of the GST/QST on personal income tax
During tax season, a number of questions arise concerning the GST/QST. Here is a summary of various elements to consider when preparing personal income tax returns:
- Employee and partner GST/QST rebate
- ITC/ITR eligibility for passenger vehicles
- Small supplier and required registration
Employee and partner GST/QST rebate
The Excise Tax Act and the Act Respecting the Quebec Sales Tax provide for a rebate to an individual who is an employee of a registrant or a member of a registered partnership for expenses on which the GST/QST has been paid and which are deductible in computing the employee or partner's income for income tax purposes. The employer or partnership must be a GST/QST registrant and the expense must not be reimbursed by the employer or the partnership.
Eligible expenses vary according to employee status (commission employees, forestry workers, transport employees, etc.) and include professional dues, office supplies, motor vehicle expenses, accounting fees, etc.
GST and QST rebates must be included in the tax return for the taxation year in which they are received. The portion of the rebate relating to the capital cost allowance (“CCA”) of a motor vehicle must be subtracted from the undepreciated capital cost. An employee of a corporation providing financial services cannot claim the GST rebate. With the full harmonization of the QST with the GST/HST for financial services, 2012 is the last year an employee of a financial service provider can claim a QST rebate Forms GST-370 and VD-358 must be filed.
Employees who receive an allowance that is deemed unreasonable for income tax purposes will have a taxable benefit on their tax slips. They may claim a GST/QST rebate as an employee on tax deductible automobile expenses.
ITC/ITR eligibility for passenger vehicles
Specific ITC/ITR rules apply when individuals registered for GST/QST purposes use a passenger vehicle less than 90% for commercial activities. The eligible input tax credit is based on the CCA deduction claimed for the taxation year. The capital cost ceiling for tax purposes is $30,000 before sales taxes. Individuals who lease a passenger vehicle can claim an ITC/ITR within the prescribed income tax limits.
Small supplier and required registration
A person is a small supplier during any particular calendar quarter and the following month if the total value of the consideration for world-wide taxable supplies, including zero-rated supplies, made by the person (or an associate of the person) in the previous four calendar quarters does not exceed $30,000. This calculation must be done each quarter and not on a calendar-year basis. If the taxable supplies of a person exceeds $30,000 in a calendar quarter, the person ceases to be a small supplier and must immediately register for sales tax purposes. Individuals who declare business income should determine if they are required to be registered for GST/QST purposes.
An individual who controls a corporation is related to that corporation. If the individual invoices management fees or rental fees to that corporation, he should consider the corporation’s sales as well as his own to determine whether they are required to register and collect taxes.
Benoit Vallée, CPA, CGA
Member of the Order’s Technical Working Group on Taxation and Commodity Taxes