Where’s My GST Refund?

April 04, 2008
Written by Scott Merry
scottmerryChanges implemented by the Canada Revenue Agency (CRA) last year could be holding up your Goods and Services Tax (GST) refund. As a greenhouse operator, you may be expecting your GST refund from your expenses incurred early in the year. Having your refund delayed could cause cash flow interruptions. These changes also introduced punitive measures restricting the deductibility of penalties and interest.

It has been almost a year since the new standardized accounting rules were put into force. Originally proposed in 2003 as the Standardized Accounting Initiative, effective April 1, 2007, the CRA implemented these proposed rules to standardize the accounting of penalty and interest across all the various legislations administered by the CRA.

PENALTY AND INTEREST

Prior to April 1, 2007, assessed amounts of GST were subject to interest based on the 90-day T-Bill rate. To calculate the monthly interest rate, CRA would take the 90-day T-Bill rate, divide it by 12 months, and round up or down to the nearest tenth of a per cent. As well, a six per cent annual penalty would apply to assessed amounts.

After March 31, 2007, the new interest rate has been raised to include the 90-day T-Bill rate rounded up to the nearest whole percentage plus four per cent. In relief of the new higher interest rate, CRA has repealed the six per cent penalty.

On first review, it would appear the CRA has replaced a penalty and interest calculation with only an interest calculation with little impact to the overall rate difference. However, the result of the changes essentially eliminated the voluntary disclosure program administered by the CRA. Prior to the changes, a taxpayer who was delinquent with his or her filings could voluntarily disclose they were not compliant with CRA and this would eliminate any penalties that would have otherwise applied.

Given the new rules do not have a penalty component, the taxpayer must still pay all interest due on any outstanding amounts. Further, any interest or penalty assessed is no longer deductible under the Income Tax Act. As a result, the after-tax cost of interest and penalty has risen by the taxpayer's income tax rate.

OTHER IMPLICATIONS

In addition to the previously mentioned changes, CRA introduced a late filing penalty equal to one per cent of any outstanding amount reported on a late-filed GST return. To avoid the late filing penalty, it is advisable to file your GST return on time, even if you can't pay the balance due.

As noted previously, these changes were put in place to "standardize" all accounting of penalty of interest across all legislation administered by the CRA. It also allows the CRA to take any refunds available, for say the GST, and apply the refund to an outstanding balance owing on a corporate tax return or perhaps to an outstanding payroll account balance. As well, CRA has the ability to hold any refunds due to the taxpayer, if there are outstanding returns (GST, corporate, payroll, etc.).

To ensure you receive any refunds due to you, be sure to file all your tax returns in a timely manner.


Scott Merry is a senior manager within Deloitte's Indirect Tax department in Kitchener. · 519-650-7737, This e-mail address is being protected from spambots. You need JavaScript enabled to view it


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