Review the economic environment around COVID-19 regarding your indirect tax situation
Businesses contending with disruptions as a result of COVID-19 may discover that they must also face important indirect tax issues. In particular, businesses now dealing with cancelled transactions, changes affecting cash flow issues and the possibilities of bad debts, among other challenges, should be aware of any related GST/HST, QST, provincial sales tax (PST) and other indirect tax considerations. That's why it's important for businesses to keep the indirect tax rules in mind when working through these issues, to ensure that they continue to meet all of their indirect tax obligations.
The federal government recently announced that taxpayers could defer GST/HST remittances (see TaxNewsFlash-Canada 2020-33, "Canada To Boost COVID-19 Tax Response"). In addition, some provincial tax authorities have announced extensions for indirect tax filing deadlines. Businesses must carefully review their obligations as they may face interest and penalties if they file indirect tax filings and remit related tax amounts late. For details, see: TaxNewsFlash-Canada 2020-30, "Highlights of Ontario's 2020 Economic and Fiscal Update", TaxNewsFlash-Canada 2020-28, "B.C. Offers Tax Deferrals and Extensions for COVID-19", TaxNewsFlash-Canada 2020-27, "Alberta Offers COVID-19 Tax Relief for Businesses", and TaxNewsFlash-Canada 2020-26, "Manitoba — RST and Other Tax Deadlines Extended".
Many businesses are adapting quickly and making difficult decisions as their daily activities are disrupted by the effects of the COVID-19 virus. This may include such changes as cancelling transactions, changing their supply chains, accepting online sales from new jurisdictions and having employees working remotely. While indirect tax considerations may not drive these kinds of business decisions, their costs may be affected by the general indirect tax rules as well as special GST/HST and QST provisions.
Cancellation of agreements, transactions and events
Businesses may have to cancel agreements, transactions or events as a result of the COVID-19 situation. Where businesses receive payments as a consequence of modified or cancelled contracts, leases or events, they may have to account for and remit GST/HST, and QST if applicable, deemed included in these payments depending on their circumstances based on special GST/HST and QST rules. However, businesses that make such payments may be entitled to claim input tax credits (ITCs), and input tax refunds (ITRs) for these amounts of GST/HST and QST. As a result, businesses that are negotiating to cancel or modify agreements should ensure they review the payments and account for the cost of the GST/HST and QST where these rules apply. This is because corporations and other taxpayers may effectively receive less money than originally negotiated if tax amounts are deemed to be included in the amount received.
Changes to agreements, leases and sales
The COVID-19 virus continues to significantly affect the cash flow of many businesses as a result of issues such as declined demand and fluctuating sales, supply chain disruptions, business closures, changes to terms and conditions in agreements, online sales to new jurisdictions and staffing shortages. Corporations and other taxpayers have to consider how these changes may affect their GST/HST, QST, PST and other indirect tax obligations. In addition, disruptions to regular processing of transactions may increase the risk of tax-related errors.
Bad debt relief for GST/HST, QST and PST
Some businesses may see their bad debts increase as some of their clients face financial hardship as a result of COVID-19. However, suppliers may be entitled to claim GST/HST and QST adjustments for tax that was previously remitted. Businesses with bad debts should ensure they carefully review the rules to determine whether their debts meet the criteria before claiming any GST/HST and QST bad debt adjustments. Similar rules apply for PST purposes.
Meet your deadlines — Audits and objections
As businesses continue to deal with issues in the wake of COVID-19, they will also have to keep an eye on various deadlines related to ongoing tax audits to maintain their right to provide additional details. Some businesses may have to address requests from the tax authorities to provide waivers to allow additional time to complete their tax audits. With many employees working remotely, businesses must ensure they put processes in place to provide proper responses and documents to tax auditors. They must also ensure that any notices of objection and other notices are filed within the related deadlines to preserve their appeal rights.
Many industries are affected differently by COVID-19 and face different indirect tax questions in light of this fast-evolving business environment. Businesses should ensure their tax department works closely with other departments to help identify and resolve tax issues arising because of COVID-19. Also, businesses may experience more tax processing errors as employees adjust to working remotely, including missed deadlines and posting of ITCs/ITRs. These businesses may want to undertake a careful review at a later date to determine if any actions could help minimize the impact of any errors.
We can help
Your KPMG advisor can help you assess how COVID-19 and tax related changes may affect your tax obligations in the days and weeks ahead, and assist you with your compliance obligations including GST/HST, QST and provincial sales tax filings. We can also provide temporary indirect tax support staff (in certain situations) to assist your tax department during these disruptive times. If you are currently under audit by the CRA, RQ or a provincial tax authority for GST/HST, QST or PST, we can also assist with requests for waivers and extension of the time frame within which to provide information and can provide other audit related support (in certain situations). We can also assist businesses looking to improve their cash flow by providing an indirect tax recovery review to help identify missed indirect tax refunds.
For more information, contact your KPMG advisor.
Information is current to April 7, 2020. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500
© 2021 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.