Deck 21: Gst-Hst

Question 1

Briefly describe the simplified method of accounting for input tax credits.

Answer 1

Under the simplified method of accounting for input tax credits, detailed records are not kept of the GST/HST that is paid on all purchases other than real property. The total GST/HST and non-refundable PST inclusive amount of fully taxable costs incurred, including eligible costs incurred for capital assets other than real property, is multiplied by a factor to arrive at the figure that will be used for input tax credits in the GST/HST return of the registrant.
The factor used will depend on the GST/HST rate in the province (e.g., 5/105 in Alberta, 15/115 in New Brunswick). As with the regular method of calculation, separate attention is given to the GST/HST paid on real property. This means that this amount will have to be prorated based on the extent to which it is used in commercial activity.

Question 2

John is a resident of Ontario where a 13 percent HST rate is in effect. He is acquiring a new car from a car dealer and is being given a trade-in allowance for his old vehicle. Explain how the HST will apply to John's purchase.

Answer 2

HST will only be levied on the net cost of the new car. The 13 percent rate will be applied to the cost of the new car, less the trade-in allowance provided.

Question 3

How are input tax credits calculated when registrants purchase capital expenditures that are (1)real property and (2)furniture and fixtures?

Answer 3

For capital expenditures on real property, the GST/HST paid is eligible for an input tax credit at the time of purchase. However, if the property is not used exclusively for commercial activity, only a portion of the GST/HST is eligible for the credit. The portion is based on the extent to which the property is used for commercial activity. This is subject to a minimum rule (there is no input tax credit if the property is used 10 percent or less for commercial activity)and a maximum rule (100 percent of the GST/HST paid is eligible for the credit if the property is used 90 percent or more for commercial activity).
For most capital expenditures other than real property (capital personal property), the GST/HST paid is eligible for an input tax credit at the time of purchase. However, if the property is used 50 percent or less for commercial activity, no credit is available. Alternatively, if the property is used more than 50 percent for commercial activity, 100 percent of the GST/HST paid is eligible for an input tax credit.

Question 4

Give two examples of entities that would have to file a GST or HST return, but do not have to file an income tax return.

Question 5

Describe the "place of supply" rules as they apply to (1)tangible goods other than real property, and (2)services.

Question 6

Explain how the GST/HST registration requirements apply to non-residents.

Question 7

Describe the "last four calendar quarters" test that is used to determine eligibility for the small suppliers exemption.

Question 8

Explain the difference between an accounts-based value added tax and invoice-credit value added tax.

Question 9

Describe two factors that have been influential in the increased use of transaction taxes in various countries around the world.

Question 10

Indicate two situations where the fact that two companies are associated would influence GST/HST procedures.

Question 11

Certain qualifying registrants can use the Quick Method of accounting for GST/HST. What are the advantages of using this method?

Question 12

GST amounts are included in revenues, expenses, assets, and liabilities of most business enterprises. How should these amounts be dealt with in the financial statements of these enterprises?

Question 13

What is the objective of the employee/partner GST/HST rebate?

Question 14

A person with taxable sales of less than $30,000 in the previous calendar year has asked your advice as to whether he should register for GST/HST purposes. What questions should you ask him about his business in order to give the appropriate advice?

Question 15

Describe the GST/HST consequences related to the sale of:
• fully taxable goods and services;
• zero-rated goods and services; and
• exempt goods and services.

Question 16

What is the basic problem with a multi-stage tax that is assessed on turnover at the various stages of the production/sale cycle?

Question 17

Under what circumstances would an entity choose to file a GST or HST return more frequently than required by the Excise Tax Act?

Question 18

How are input tax credits calculated on the current expenditures of a business?

Question 19

Provide two examples of expenditures where available input tax credits are restricted, even when the expenditures involved commercial activity.

Question 20

Briefly describe the advantages, from the point of view of business organizations, of an HST system as compared to a combined GST/PST system.

Question 21

Despite several advantages of transaction taxes, such as their simplicity, they are not the only source of revenue for the federal government. Why are income taxes still used as a significant source of revenue for the government?

A)Income taxes can be applied with greater consistency than transaction taxes.
B)Income taxes encourage individual initiative to work and invest, while transaction taxes discourage these activities.
C)Income taxes are less regressive than transaction taxes.
D)Income taxes result in lower income individuals paying a higher proportion of their income in taxes.

Question 22

Those provinces that participate in the Harmonized Sales Tax program do not have a provincial sales tax.

Question 23

How does the Canadian government compensate for the regressive nature of the GST?

A)By allowing an exemption from the tax for lower income individuals.
B)By ensuring that items purchased more frequently by lower income individuals are not subject to the tax.
C)By providing lower income individuals with GST refunds.
D)By providing a refundable GST tax credit that is available to lower income individuals.

Question 24

Zero-rated supplies are not considered to be taxable supplies.

Question 25

If a newly acquired capital real property is used more than 50 percent for the provision of taxable supplies, the acquirer can claim 100 percent of the GST paid as an input tax credit.

Question 26

When the quick method is used, input tax credits on capital expenditures are tracked and dealt with in the same manner as when the regular method is used.

Question 27

One reason for using a single stage transaction tax as opposed to a multi-stage transaction tax is that it allows the government to accrue revenues at a faster pace.

Question 28

If a newly acquired capital personal property is used more than 50 percent for the provision of taxable supplies, the acquirer can claim 100 percent of the GST paid as an input tax credit.

Question 29

A new car is purchased with a credit against the price for a vehicle that is traded in. GST is charged on the full purchase price, before the credit for the trade-in .

Question 30

Providers of zero-rated goods are not allowed to claim input tax credits.

Question 31

If a non-registrant has taxable supplies in excess of $30,000 in a calendar quarter, he becomes a deemed registrant as of the first sale in that quarter that pushes the total over $30,000.

Question 32

In general, transaction taxes are easy to administer and collect.

Question 33

An advantage of transaction taxes is they keep tax revenues in the country in which they are assessed.

Question 34

Providers of health care services and providers of financial services to Canadian residents do not charge GST on their sales.

Question 35

Employees in a province that does not participate in the Harmonized Sales Tax program are entitled to a GST rebate equal to 5 percent of the expenses on which GST was charged that they deducted for income tax purposes.

Question 36

The disposal of a complete business through a sale of its assets is a taxable supply for GST/HST purposes. However, there is an election that allows the vendor and purchaser to treat the supply as if it were zero-rated. What conditions must be present for this election to be used?

Question 37

The GST rebate on the purchase of a new home with a purchase price less than $350,000, is equal to 36 percent of the GST paid.

Question 38

Which of the following is not a transaction tax?

A)The federal GST that is assessed in Alberta.
B)The provincial sales tax that is assessed in Manitoba.
C)The tax charged for spending a day in Banff National Park.
D)The toll assessed for driving on Highway 407 in Toronto.

Question 39

Briefly describe the GST/HST rebate that is available on purchases of new residential housing in those provinces that do not participate in the HST program.

Question 40

Which of the following is NOT correct?

A)All persons engaged in a business must register with the CRA for GST purposes.
B)In a province, there can be a provincial sales tax or the HST, but not both.
C)Long-term residential rents are exempt from GST.
D)Manitoba and Saskatchewan charge GST at the same rate.

Question 41

Which of the following statements related to fully taxable and zero-rated supplies in a participating province is correct?

A)Fully taxable supplies are taxed at the HST rate and zero-rated supplies are taxed at 0.0 percent. Expenditures related to both types of supplies are eligible for input tax credits.
B)Fully taxable supplies are taxed at the HST rate and zero-rated supplies are taxed at 0.0 percent. Input tax credits are available on only expenditures related to fully taxable supplies.
C)Both types of supplies are taxed at the HST rate. Input tax credits are available on only expenditures related to fully taxable supplies.
D)Fully taxable supplies are taxed at the HST rate and zero-rated supplies are taxed at 0.0 percent. Input tax credits are available on all expenditures related to fully taxable supplies and on only capital expenditures related to zero-related supplies.

Question 42

Jasper Appliances is an Ontario HST registrant. Ontario has a 13 percent HST rate. As part of its Black Friday promotion, the store is advertising that, on that day, products can be purchased with no HST charged. On that day, a stove is sold for $2,800, its list price with no HST added to the amount owed by the customer. How much HST would Jasper Appliances owe the government as a result of this sale?

A)$322.12
B)Nil
C)$364.00
D)$133.33

Question 43

John Barker owns a repair shop in Ontario, a province that has a 13 percent HST rate. He has asked you to calculate the HST payable or refund for the first reporting period. Given the following information, what should the repair shop's HST payable or refund be?

A)A refund of $8,450.
B)A payment of $6,500.
C)A refund of $3,770.
D)A refund of $5,980.

Question 44

In Ontario, the HST rate is 13 percent, in Alberta there is only GST of 5 percent. For which of the following transactions will the rate charged be 5 percent?

A)A writer located in Alberta produces a book for a publisher located in Ontario and receives payment from the Ontario office.
B)An Ontario registrant sells a product to a resident of Alberta who is visiting Ontario.
C)An Alberta registrant ships a product to a recipient in Ontario.
D)An Ontario registrant ships a product to a recipient in Alberta.

Question 45

With respect to the quick method of accounting for GST/HST, which of the following statements is NOT correct?

A)The rates used to determine the GST/HST liability under the quick method depend on whether the registrant is a business that purchases goods for resale or a business that provides services.
B)Capital expenditures are tracked separately for purposes of determining input tax credits.
C)Any business can elect to use the quick method as long as annual GST/HST included taxable sales total $400,000 or less.
D)Current expenditures are not tracked separately for purposes of determining input tax credits.

Question 46

You are performing a review of a lawyer's books of account. The lawyer's office is in Ontario where the HST rate is 13 percent. While you are in her office, she asks you to calculate how much her HST remittance should be. You are given the following amounts which exclude HST charged or paid. Based on the above transactions, the HST payable is:

A)$21,775.
B)$39,325.
C)$39,975.
D)$41,275.
E)None of the above.

Question 47

With respect to the simplified method of accounting for input tax credits in a province that does not participate in the HST program, which of the following statements is NOT correct?

A)Total fully taxable inputs, with the exclusion of capital expenditures on real property, are multiplied by 5/105 to arrive at the input tax credit for the GST return.
B)Capital expenditures are not tracked separately for purposes of determining input tax credits.
C)Registrants using this method charge GST at the usual 5 percent rate on fully taxable sales.
D)Registrants using this method who provide both taxable and exempt goods and services must pro-rate the input tax credit claim so that only the portion that applies to taxable goods and services is claimed.

Question 48

Joel Knight, a lawyer, is a sole practitioner in the province of Ontario. The HST rate in Ontario is 13 percent. Joel has requested that you advise him on what his HST remittance should be for the October to December quarter. Details of transactions, excluding HST, between October and December are: The HST that is to be remitted for the October to December quarter is:

A)$1,105.
B)$2,535.
C)$3,445.
D)$3,835.
E)None of the above.

Question 49

George Black lives in Manitoba, a non-participating province that has an 8 percent provincial sales tax. During the current year, he purchases a new Lexus for $82,000. He receives a trade in allowance of $36,000 for his old vehicle. The GST/HST charged on his new vehicle would be equal to:

A)$4,100.
B)$2,300.
C)$5,980.
D)$10,660.

Question 50

Paddy's Cycle Shop operates in Ontario where the HST rate is 13 percent. A summary of the shop's transactions for the month of January is as follows: The HST that is to be remitted in respect of the above transactions is:

A)$15,665.
B)$16,055.
C)$16,705.
D)$17,095.
E)None of the above.

Question 51

Elfassy Art Dealers is a new business which started operating on January 1 of the current year. It had four sales on the following dates during its first year of operation: On what date will Elfassy Art Dealers have to begin collecting GST?

A)July 1.
B)August 1.
C)September 1.
D)November 1.

Question 52

For vendors of taxable supplies who purchase goods for resale and make capital expenditures to be used in commercial activities, input tax credits can be claimed for GST/HST billed or paid on:

A)all capital expenditures made during the period and goods sold during the period.
B)a portion of capital expenditures based on their estimated service life and goods purchased for resale during the period.
C)a portion of capital expenditures based on their estimated service life and goods sold during the period.
D)all capital expenditures made during the period and goods purchased for resale during the period.
E)goods purchased for resale during the period, but not capital expenditures.

Question 53

Underwater World Ltd., is located in Alberta. Alberta does not participate in the HST program and does not have a provincial sales tax. Among the purchases Underwater World Ltd. made during December were the following items: Waterways Ltd. carries supplies for charter boat operators and requires the payment of a membership to use their services. The input tax credits that Underwater World Ltd. can claim for the above items for December are:

A)$350.
B)$370.
C)$395.
D)$430.
E)None of the above.

Question 54

A GST rebate is available to employees of a GST registrant located in a province that does not participate in the HST program. The calculation is based on a factor of 5/105 of:

A)all taxable benefits received from their employer.
B)all expenses deducted in the calculation of net employment income.
C)all taxable benefits received from their employer and all expenses deducted in the calculation of net employment income.
D)all eligible expenses for fully taxable supplies deducted in the calculation of net employment income, except for capital cost allowances.
E)all eligible expenses for fully taxable supplies deducted in the calculation of net employment income, including capital cost allowances.

Question 55

Kenichi Tajima operates a small clothing store in Saskatchewan, a non-participating province. The provincial sales tax is 6 percent. This store uses the simplified method of accounting for input tax credits. The store had fully taxable purchases of $180,000 and purchased capital items (not including real property)with a cost of $5,000. Both amounts include PST and GST. What amount of input tax credit is Mr. Tajima able to claim?

A)$0
B)$8,333
C)$8,810
D)$9,250

Question 56

Which of the following is NOT a fully taxable supply?

A)A bus ride from home to school.
B)The purchase of a litre of milk at the grocery store.
C)The purchase of a meal in a restaurant.
D)The completion of a tax return by an accounting firm.

Question 57

The term taxable supply, as it is used in the Excise Tax Act, would include all of the following except:

A)the sale of a new television by an unincorporated business.
B)the provision of electrical installation services by an electrician.
C)the sale of a life insurance policy by an insurance agency.
D)a cash free exchange of merchandise between two retail businesses.

Question 58

Marvin's Rooms is a new business which started on January 1, 2020. Its sales during its first four quarters of operation were as follows: On what date will Marvin's Rooms have to begin collecting GST?

A)The date in the second quarter on which cumulative sales total $30,000.
B)July 1, 2020.
C)August 1, 2020.
D)September 1, 2020.

Question 59

Which of the following statements related to exempt and zero-rated supplies is correct?

A)Both zero-rated and exempt supplies are taxable at 0.0 percent. Expenditures related to zero-rated supplies are eligible for input tax credits and those related to exempt supplies are not.
B)Zero-rated supplies are taxable at 0.0 percent, while exempt supplies are not taxable. Expenditures related to both zero-rated and exempt supplies are eligible for input tax credits.
C)Zero-rated supplies are taxable at 0.0 percent, while exempt supplies are not taxable. Expenditures related to zero-rated supplies are eligible for input tax credits and those related to exempt supplies are not.
D)Both zero-rated and exempt supplies are taxable at 0.0 percent. Neither expenditures related to zero-rated supplies nor those related to exempt supplies are eligible for input tax credits.

Question 60

Associated persons file separate GST/HST returns, but they must combine their total taxable sales of goods and services in certain situations. A Ltd. sells 100 percent fully taxable supplies, and B Ltd. sells 100 percent zero-rated supplies. In which of the following situations would the associated small businesses A Ltd. and B Ltd. NOT need to combine their taxable sales?

A)A Ltd. and B Ltd. would like to claim the full input tax credit on the purchase of a building for A Ltd.
B)A Ltd. and B Ltd. would like to use the small supplier's exemption.
C)A Ltd. and B Ltd. would like to use the quick method of accounting.
D)A Ltd. and B Ltd. would like to use the simplified method for calculating input tax credits.

Question 61

Tamara Soccorro is a real estate agent. She lives in a province that participates in the HST program at 13 percent. She earns commission income, and pays her employment related expenses herself. Tamara has claimed the following expenses on her T777 - Statement of Employment Expenses: Where applicable, the amounts include the HST. What is Tamara's Employee HST Rebate?

A)$ 607
B)$1,273
C)$1,439
D)$1,634

Question 62

Ms. Mary Rivers works in the province of Ontario where the HST rate is 13 percent. She is a photographer and, during the current year she records service revenue of $136,000. Rent for this period on her office and darkroom totals $29,450 and she pays an office assistant an annual salary of $21,300. Her capital expenditures during the period are for photographic equipment with a cost of $43,700 and computer hardware and software for $18,000. All amounts are before the addition of HST. She files her HST return on an annual basis and does not use the Quick Method.
Determine the net HST payable or refund for the year.

Question 63

In which of the following situations will the vendor and purchaser be able to file a joint election to treat the supply as if it were zero-rated?

A)The vendor is selling substantially all of the assets of his business. The vendor is a GST/HST registrant but the purchaser is not.
B)The vendor is selling the majority (60 percent)of the assets of the business. Both the vendor and the purchaser are GST/HST registrants.
C)The vendor is selling the shares of the business. Both the vendor and the purchaser are GST/HST registrants.
D)The vendor is selling substantially all of the assets of his business. Neither the vendor nor the purchaser are GST/HST registrants.

Question 64

Logan Inc. is located in Ontario where a 13 percent HST is applicable. During the current year, the Company makes the following capital expenditures: The building will be used 40 percent to produce fully taxable supplies and 60 percent for zero-rated supplies. The equipment will be used 35 percent for fully taxable supplies, 25 percent for zero-rated supplies, and 40 percent for exempt supplies.
Determine the input tax credits that Logan Inc. can claim as a result of these capital expenditures.

Question 65

A registered charity in a non-participating province has a used clothing store. Revenues from the store for the year total $40,000. Which of the following statements is correct?

A)The charity will have to collect GST on all of their clothing sales.
B)The charity will not have to collect any GST on their clothing sales.
C)The charity will have to collect GST on their clothing sales on revenues greater than a $30,000 small supplier exemption.
D)The charity cannot claim input tax credits.

Question 66

Felicia's Frocks, an unincorporated retail business, operates solely in Nova Scotia where the HST rate is 15 percent. The Quick Method remittance rates are 5 percent for businesses that purchase goods for resale and 10 percent for service providers. During the first quarter of the year, the business has sales of fully taxable items in the amount of $42,300. Current expenses on which HST was paid amount to $37,800. In addition, capital expenditures during this period totaled $72,000. All of these amounts are before the inclusion of HST. The business has no activities other than the delivery of fully taxable merchandise.
Compare the HST payable (receivable)using the regular method applicable to GST/HST calculations with the amount that would be payable (receivable)using the Quick Method.

Question 67

Which of the following transactions related to the operation of a trust are subject to GST/HST?

A)A distribution of taxable supplies by the trust to the beneficiaries.
B)A distribution of family jewelry by a trust to a beneficiary in the process of settling an estate.
C)A distribution of financial securities.
D)The sale of an interest in a trust by a beneficiary.

Question 68

Marvin Gardens starts a new business on January 1 of the current year. During the first year of operations, quarterly sales were as follows: *Consists of a sale of $15,000 on July 15, and a sale of $20,000 on September 27.
At what point in time will Mr. Gardens have to begin collecting GST? At what point will he be required to register?

Question 69

Alvin Creek has a business in Nova Scotia where the HST rate is 15 percent. He is a management consultant whose business had HST included revenues of $517,500 during the current year. His current expenses for the year are as follows (all amounts are before HST): During the year, his inventory of office supplies decreased by $3,000. In addition to these current expenditures, he acquired a new vehicle to be used in his business at a cost of $45,000, before the inclusion of HST. The vehicle is used 95 percent for business purposes. Assume that the prescribed limit for Class 10.1 vehicles is $30,000.
Determine the net HST payable or refund for the year.

Question 70

Ms. Jesse Holt begins her business on January 1 of the current year. Her quarterly sales of fully taxable items are as follows: *Consists of a sale of $28,000 on October 15 and a sale of $14,000 on November 27.
At what point in time will Ms. Holt have to begin collecting GST? At what point will she be required to register?

Question 71

May Poplar lives in Alberta, a province that does not participate in the HST program. During the current year she records service revenue of $326,000. May has never used the ITA 34 option to record revenue on a billed basis. Her current expenses for the year are as follows (all amounts are before GST): Her inventory of Supplies increased by $4,000 during the year. In addition to these current expenditures, she acquired additional furniture and fixtures in the amount of $18,000, before the inclusion of GST. She files her GST return on an annual basis and does not use the Quick Method.
Determine the net GST payable or refund for the year.

Question 72

Mr. Jack Morton works in the province of Alberta, a province that does not participate in the HST program. He is a management consultant who delivers services that are billed at a GST inclusive amount of $286,650 during the current year. Before the inclusion of any applicable GST, his expenses for the year are $18,000 for rent, $23,500 for clerical salaries, $5,000 for interest on a loan, and $3,000 for office supplies (purchases of these supplies totaled $4,500 for the year). In addition, he acquired office furniture at the beginning of the year for $32,000, plus GST of $1,600. The cost of this furniture is being expensed over 10 years at a rate of $3,200 per year.
Determine the net GST payable or refund for the year.

Question 73

Sheila Hammer starts a new business on January 1 of the current year. Her quarterly sales of taxable items are as follows: At what point in time will Ms. Hammer have to begin collecting GST? At what point will she be required to register?

Question 74

Click Cameras, an unincorporated retail business, operates in Alberta which does not participate in the HST program. The Quick Method remittance rates are 1.8 percent for businesses that purchase goods for resale and 3.6 percent for service providers. During the first quarter of the year, the business has taxable sales of $63,400. Current expenses on which the GST was paid total $26,275. Due to numerous burglaries, Click Cameras spends $44,900 on a sophisticated security system. All of these amounts are before the inclusion of GST. The system is being amortized over five years on a straight line basis. The store is used exclusively for the sale of taxable merchandise.
Compare the GST payable (receivable)using the regular method applicable to GST calculations with the amount that would be payable (receivable)using the Quick Method.

Question 75

In April of the current year, Bryan Lord purchases a new home at a cost of $610,000, plus GST of $30,500. Bryan is a resident of Manitoba, a province that does not participate in the HST program. Bryan will be eligible for a new housing GST rebate of:

A)Nil.
B)$6,300.
C)$10,980.
D)$17,500.

Question 76

A partnership operates an engineering firm, providing fully taxable services. Which of the following statements is correct?

A)The partners are required to register for the GST/HST with respect to the commercial activities.
B)The partnership is required to collect the GST/HST on taxable supplies and is eligible for input tax credits.
C)Partners are not individually liable for the GST/HST of the partnership.
D)Costs incurred by partners that are reimbursed by the partnership are eligible for the Employee and Partner GST/HST Rebate.

Question 77

Mr. Marcus Leblanc begins his business on January 1 of the current year. His quarterly sales of taxable items are as follows: At what point in time will Mr. Leblanc have to begin collecting GST? At what point will he be required to register?

Question 78

During the current taxation period, Mackin Enterprises purchased merchandise for $371,000. Merchandise sales during this period totalled $476,000 and the cost of the merchandise sold was $302,000. Ignoring all other costs incurred by Mackin and assuming a rate of 5 percent, how much tax would be paid by Mackin under an accounts-based VAT system and under an invoice-credit VAT system?

Question 79

Brad Inc. had sales of merchandise during the current taxation period of $825,000. The cost of the merchandise sold was $562,000. During the period, inventories of merchandise increased by $150,000. Without consideration of other costs incurred by Brad Inc., and using a rate of 8 percent, determine how much tax would be paid by the Company under an accounts-based VAT system and under an invoice-credit VAT system.

Question 80

Edleson Inc. is located in a province that does not participate in the HST program. During its current fiscal period, Edleson Inc. purchases an office building for $1,450,000 (excluding GST), including a payment for the land of $320,000. It spends an additional $347,400 (excluding GST)for equipment to be used in the building. The building will be used 35 percent to produce fully taxable supplies and 65 percent for exempt supplies. The equipment will be used 42 percent for taxable supplies and 58 percent for exempt supplies. For accounting purposes, the building will be amortized over 30 years, while the equipment will be written off over 12 years.
Determine the input tax credits that Edleson Inc. can claim as a result of these capital expenditures.