OT- Contractor

[Christopher Browne]

On Tue, Jun 22, 2010 at 6:03 PM,  <phiscock-g851W1bGYuGnS0EtXVNi6w at public.gmane.org> wrote:
>> Incorporation separates things nicely,
>> plus you can buy your car inside the corp and not pay GST, or HST
>> soon.
>> Only your accountant can advise you on
>> how aggressive you should be on what is a company purchase, and what
>> is not.
>
> My understanding is that stuff bought for resale gets a GST refund, or is
> PST exempt. Stuff bought to operate the company (eg, computers, that are
> not resold to a client) are taxable.
>
> In fact, I had a PST inspector here at my premises to check that it was
> being done properly. We passed, happily.
>
> You also have to be careful in granting exemptions. I know of one company
> that was audited and had to cough up thousands in PST payments because
> they had been sloppy about granting PST exemptions.

GST and PST are quite different kinds of taxes, notably in the area of
exemptions.

The intent of PST is that it is to be applied only to consumers; when
businesses buy goods to use, notably for resale, business purchases
are commonly PST-exempt.

In contrast, GST is "layered"; GST is to be applied to substantially
all kinds of sales, whether to individuals or to businesses.  But when
a business buys goods to which GST was applied, they get a credit for
that.

Thus, supposing GST is at 5%...

A business buys $105,000 worth of materials and stuff, which had $5K
of GST in it.

They sell $210,000 of stuff to other folks, of which $10K is GST.  No
"exemptions" here.

That business would be expected to pay CRA $10K - $5K = $5K of GST.

Historically, wholesalers and manufacturers have been reluctant to
sell to individuals, as this, in a PST-like tax regimen, draws them
into needing to figure out who's exempt and who's not.  They'd much
prefer, in that case, to avoid even needing to think about PST.  I'm
nearly certain that's why there used to be wholesalers that wouldn't
deal with individuals.  (And I think I only realized that fact just
now.)

The GST regimen changes that, and has actually changed the shape of
retailing, because it got rid of this "don't want to sell to
individuals" mentality.  It didn't do so *completely*, but I recall in
my youth that there were a whole lot of businesses that refused to
sell to the public, which seemed mighty unfair, at the time.

Tax policy is a lot more curious than it often appears...   For all
that GST takes the brunt of a lot of public unpopularity, I think a
HUGE dose of that comes from personal hatred of  Mulroney's government
that enacted the legislation, as opposed to rational analysis of the
effects of the policy.  (At the time, I watched, with amusement, the
general irony that a whole lot of the policies he implemented were of
a shape traditional to the Liberals, and the Liberals' noisy
opposition used arguments characteristic of Conservative positions of
earlier in the century.)
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