GST / HST for Manufacturers
Question - For Manufacturers, are 100% of the GST / HST takes paid on any goods and services recoverable, as long as we are registered Canadian taxpayers?
The thought here is that we are in the business of wholesaling product to dealers; therefore, 100% of our goods and services are built, either directly or indirectly into the final price of our product to our dealer network. Then, our dealer network makes an additional profit and sells our product to the retail customer.
So, only the final sale of the retail product is taxable. Which means, that since both our dealer network and our manufacturing company are in the business to make a profit, that 100% of the goods and services purchased by our manufacturing company should be claimed as ITC's, resulting in 100% tax neutral position for our company. I think that is essentially what you are saying in your website materials.
Please confirm. Thank you for your time in answering this question.
I want to start this post by saying I have absolutely no experience doing books for a manufacturing company.
I believe that there are some special provisions / rules for manufacturing ... of which I am not conversant. That said, if I approach this strictly from a bookkeeping perspective, here's my understanding:
If you are a US company with a presence in Canada, you need to be registered for GST/HST
... which you indicated you are.
Once you are a GST/HST registrant, you must collect GST/HST on sales on goods and services sold in accordance with CRA's place of supply rules
It is my understanding, that inter-company transactions should still charge each other GST/HST on the goods and services sold to each other. The exceptions to this rule, I think, are real estate transactions. They can make an election to not charge GST/HST but the transaction is still reported on line 205 of the GST/HST return.
Everyone else has to charge the GST/HST on each transaction and have each company claim the appropriate input tax credits (ITCs), making the tax neutral to businesses. The idea is you do not have to factor tax into the cost of your product, as the tax is "rebated" through the ITC when a GST/HST return is filed with CRA.
The consumer eventually is the one who ends up paying the value added tax, as they are not eligible to claim ITCs.
I wasn't sure from your question, but to clarify one point. It is only the sales tax
on goods and services purchased that are not zero rated or exempt
that qualify for the ITC.
These ITCs are offset against the GST/HST collected on the sale of goods and services. The net amount is remitted to CRA. If the amount is negative in a period, CRA sends a refund.
As I said, there may be special rules for manufacturing. You may want to phone CRA and see what they say.
Another option is to contact a tax lawyer who specializes in GST/HST like David Sherman at davidsherman.ca or Cyndee Todgham Chemiak at thehstblog.com.
There are also Chartered Accountants conversant in cross border taxes. Phil Hogan, CA has a website where you can ask questions. It is located at philhogan.com.
Sorry I can't be more help than that. As I said, please verify everything I said with an expert as I have no experience in this area.P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.