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Questions and Answers
When was the GST introduced in Canada?
January 1, 1991
What was the GST rate reduced to in 2006?
The intent of GST developers was to eliminate the dual administrative system.
True
What is the current GST rate in Canada?
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Which provinces implement HST?
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GST and HST are types of ______ taxes.
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What is a potential disadvantage of transaction taxes?
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What tax rate would be assessed in Manitoba for a $25,000 sale?
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What is the 'pyramiding' problem in transaction taxes?
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An activity that involves making an exempt supply of real property is a commercial activity.
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An activity that involves making a taxable supply of real property is a commercial activity.
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In general, transaction taxes are easy to administer and collect.
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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.
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Zero-rated supplies are not considered to be taxable supplies.
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If a non-registrant has taxable supplies in excess of $30,000 in a calendar quarter, the individual becomes a deemed registrant as of the first sale in that quarter that pushes the total over $30,000.
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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.
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Which of the following is NOT a transaction tax?
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Which of the following statements related to fully taxable and zero-rated supplies in a participating province is correct?
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What would be the GST/HST charged on a new Lexus purchased for $82,000 with a trade-in allowance of $36,000 in Manitoba?
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On what date will Marvin's Rooms have to begin collecting GST based on its sales?
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When will Elfassy Art Dealers have to begin collecting GST/HST based on its sales dates?
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Given the provided financial data, what should John Barker's repair shop's HST payable or refund be?
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Study Notes
Goods and Services Tax (GST) Overview
- GST introduced in Canada on January 1, 1991, initially at a rate of 7%.
- Rate reduced to 6% in 2006 and further to 5% in 2008, current rate.
- Replaced the Federal Sales Tax (FST) on manufactured goods.
Harmonized Sales Tax (HST)
- GST was designed to combine with provincial sales tax (PST) to create HST, aiming to streamline tax administration.
- Initial resistance from provinces led to legal challenges, claiming GST was unconstitutional.
Current Sales Tax Rates in Canada
- Non-participating provinces:
- Alberta and three territories: GST only at 5%
- Provinces with GST and PST:
- British Columbia: 5% GST + 7% PST
- Manitoba: 5% GST + 7% PST
- Saskatchewan: 5% GST + 6% PST
- Participating provinces with HST (PST included):
- New Brunswick, Newfoundland, Nova Scotia, Prince Edward Island: HST at 15%
- Ontario: HST at 13%
- Quebec: GST and Quebec Sales Tax (QST) at 5% + 9.97%.
Transaction Tax Concepts – General Description
- GST and HST are transaction taxes, facilitating easier administration with flat rates.
- Benefits include:
- Simplicity and non-progressive nature encouraging work.
- Consistency across various income levels; tax revenue remains in Canada.
- Disadvantage:
- Disproportionate impact on lower-income individuals, making it a regressive system.
- Mitigated via refundable HST credits when filing income tax.
Transaction Tax Example
- Manufacturing cost: 1,000 units at 4,totaling4, totaling 4,totaling4,000.
- Selling price to wholesaler: 10,000(1,000x10,000 (1,000 x 10,000(1,000x10).
- Retailer sells to customers at 25,000(500unitsat25,000 (500 units at 25,000(500unitsat50).
Types of Transaction Taxes
-
Single stage transaction tax (retail sales tax):
- Applied visibly at the consumer level, allowing clear incidence.
- Example: In Manitoba, a sales tax of 7% would amount to 1,750ona1,750 on a 1,750ona25,000 transaction.
-
Multi-stage transaction tax:
- Can apply tax at wholesale and retail levels or at manufacturer and wholesale levels, leading to quicker revenue accrual.
- Risk of "pyramiding" where tax is applied to previously assessed taxes at multiple stages.
Value Added Tax (VAT) Types
- Assessed based on the value added at each level of the production and sales process.
True/False Statements - Basic Rules and General Concepts
- Commercial activity does not include exempt supplies of real property.
- Taxable supplies of real property are not classified as commercial activities.
- Transaction taxes are considered straightforward to administer and collect.
- A multi-stage transaction tax allows the government to accrue revenues more rapidly than a single-stage tax.
- Zero-rated supplies are deemed taxable supplies under tax law.
True/False Statements - Registration
- A non-registrant with taxable supplies over $30,000 in a quarter becomes a deemed registrant starting from the first sale that exceeds the threshold.
- When using the quick method, input tax credits for capital expenditures must be tracked separately compared to the regular method.
Multiple Choice Questions - Basic Rules and General Concepts
- Transaction taxes include federal GST, provincial sales tax, and various tolls, but exclude other specific levies.
- In a sale of toner for $1,000 from ABC Ltd. to Staples Ltd in Manitoba, payment of appropriate taxes influences the amount of input tax credit (ITC) claimable.
Type of Supplies
- Fully taxable supplies in participating provinces incur HST, whereas zero-rated supplies are taxed at 0% with ITCs being available for expenditures related only to fully taxable supplies.
Trade-in Calculation Example
- In Manitoba, with a 7% provincial sales tax, GST on a new Lexus priced at $82,000 with a $36,000 trade-in is calculated at 5%, not including PST.
GST Collection Timeline Cases
- Marvin's Rooms will need to collect GST once cumulative sales exceed $30,000, specifically at the end of the second quarter.
- Elfassy Art Dealers will start collecting GST/HST on the date following the month when cumulative sales first exceed $30,000.
HST Payable or Refund Calculation
- For John Barker's repair shop in Ontario, the HST transaction involves calculating total sales and expenses to determine if there is a payable amount or refund due based on the HST rate applied.
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Description
This quiz covers the introduction and evolution of the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST) in Canada as outlined in Byrd & Chen’s Canadian Tax Principles. Test your understanding of tax rates, historical changes, and the integration of GST with provincial sales tax.
