Presenting a live 110 ‐ minute teleconference with interactive Q&A Canadian Sales Tax Audits: Preparation Strategies Canadian Sales Tax Audits: Preparation Strategies Getting Ready for Tougher GST, PST and HST Examinations THURSDAY, SEPTEMBER 15, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Cyndee Todgham Cherniak Counsel McMillan LLP Toronto ON Canada Cyndee Todgham Cherniak, Counsel, McMillan LLP , Toronto, ON Canada Heather Weber, Leader, Indirect Tax Group, MNP LLP , Toronto, ON Canada Cathy Kuhrt, Partner, Sales Tax, Grant Thornton , Mississauga, ON Canada For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at1-800-926-7926 ext. 10 .
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C Canadian Sales Tax Audits: Preparation di S l T A dit P ti Strategies Seminar Sept. 15, 2011 Heather Weber, MNP LLP Cathy Kuhrt, Grant Thornton LLP heather.weber@mnp.ca cathy.kuhrt@ca.gt.com Cyndee Todgham Cherniak, McMillan LLP cyndee@mcmillan.ca
Today’s Program Audit Preparation And Realities A dit P ti A d R liti Slid 7 Slid 30 Slide 7 – Slide 30 [Heat her Weber] Slide 31 – Slide 40 Audit Preparation Best Practices [Cat hy Kuhrt ] Voluntary Disclosures Slide 41 – Slide 46 [Cat hy Kuhrt ] Objections Phase Slide 47 – Slide 54 [Heat her Weber] Rulings l Slide 55 – Slide 59 l d l d [Cyndee Todgham Cherniak] Appeals Phase Slide 60 – Slide 74 [C [Cyndee Todgham Cherniak] d T d h Ch i k]
Heather Weber, MNP LLP AUDIT PREPARATION AND AUDIT PREPARATION AND REALITIES
K l Kelowna, B.C. : The Okanagan B C Th Ok 8
Canadian Sales Tax Audits: GST/HST And PST I. Audit preparation and realities I. Audit issues II II. GST/HST GST/HST audits dit I. What is different with HST? III. PST audits III PST audits I. BC and Ontario – After HST came into place II. II. BC now that we are going back to a PST and GST BC now that we are going back to a PST and GST system III. Manitoba and Saskatchewan IV. Ongoing transactions and reporting requirements 9
A di P Audit Preparation i An audit is unfortunately inevitable; it is part of doing • business. Do you have the right controls in place? Do you have the right controls in place? • ― Have you ever reviewed your sales tax processes? ― Are there the right checks and balances in place? How g p often are your processes checked to ensure that they are working properly? ― As the GST/HST and PST are transaction based taxes As the GST/HST and PST are transaction-based taxes, they are dependent on a good processing system to ensure the correct rate of tax is calculated. 10
A di P Audit Preparation (Cont.) i (C ) As a non-resident, when you registered for sales tax, did you • agree to keep your records in Canada or outside of Canada? Controlling the audit process is very important. When the • auditor calls, it is useful to do a quick review to see where there may be issues. Having your own accountants identify any potential audit Having your own accountants identify any potential audit • issues and then manage the audit process can save thousands of dollars. 11
Th A di The Auditor Calls C ll If you have not elected to keep your records at a location in Canada, y p y , • you will be required to fly the auditor to your place of business outside of Canada, at your own expense. If you live in California, Florida or another warm state, don’t be If you live in California, Florida or another warm state, don t be • surprised if the auditors want to schedule audits in the middle of the winter. Although your information may be kept at your head office it may Although your information may be kept at your head office, it may • • be preferable to send your records to your Canadian accountant’s office. The auditor can work on the audit at the accountant’s office, and the entire process can be controlled and monitored as to what and the entire process can be controlled and monitored as to what the auditor copies, whom they speak with, etc. As nice as the auditors may seem, they are always looking for • something (I should know as I was one in my former life) something (I should know, as I was one in my former life). 12
GST/HST A di GST/HST Audits As you know, BC and ON moved to an HST system on July 1, 2010. • This brought about many changes to the legislation, including place- of-supply rules, which Cathy will cover later. BC has just held a referendum on the HST, and residents voted 54.7% • to move back to a GST 5%/PST 7% system. This will take place over the next 18 months. ― There will be new transition rules to account for the change back to a PST system. ― This will have a huge impact on our clients Currently under an This will have a huge impact on our clients. Currently under an HST system, for most businesses all of the tax is recoverable. Once BC goes back to a PST system, the 7% PST paid will form part of the cost of doing business. p g 13
HST In BC: Soon To Be GST And PST There is an opportunity for businesses operating in BC to do some planning before the PST comes back. As examples: Capital expenditures are 7% cheaper under the HST Capital expenditures are 7% cheaper under the HST • system. Software contracts are 7% cheaper under the HST system. • Under the current HST system, contractors are able to bid competitively on work in other provinces that do not have a PST p y p system, such as Alberta, Ontario, New Brunswick, Nova Scotia and Newfoundland. 14
GST/HST Th A di GST/HST: The Auditor Arrives A i • The auditors are becoming more aggressive. • It is important to start the process off properly. Auditors will typically send out an initial letter to request information to start the review. • These letters can be very detailed, starting with a summary of your business operations, including who owns the business and an y p , g organization chart. 15
GST/HST: The Auditor Arrives (Cont.) Typically, the auditor will want to review the: ― General ledger, ― Adjusting journal entries, and ― Financial statements ― From there, he or she will verify a sample of invoices or expenses. The auditor is able to request this information. However, it is important to question the requests if they seem unreasonable. For example, if the auditor is doing a GST audit and then starts to ask questions about a unrelated business that is one of your suppliers 16
GST/HST Audits GST/HST A di There is the ability to keep your records in your own currency. However, this must be requested, and of course the records must be consistent. As the expenses would be incurred in Canadian currency, there would have to be a reasonable approach to convert back. h t b bl h t t b k Most businesses choose to report transactions in Canadian dollars, for purposes of the filing requirements here. For their U.S. reporting, everything is converted to U.S. dollars. This does require a separate spreadsheet. Canada does get concerned when something is paid in Canadian dollars, converted to U.S. dollars and then converted back to Canadian dollars, all at different rates. 17
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