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Introduction
The Canada Revenue Agency (CRA) has announced that it will allow businesses to postpone, up until the end of June 2020, any type of HST in Ontario (and other provinces) payments that are owing on or after March 27, 2020, and before June 2020.
This is all part of Canada’s COVID-19 Economic Response Plan. In this Brandon’s Blog, I outline this program and then discuss the issues surrounding taking advantage of this HST in Ontario 2020 coronavirus deferral.
The program
The due date for businesses located in Ontario and the other Canadian provinces to file their returns is the same. Those that are able to, must file their information return on-time reporting their net tax for the reporting period. Identifying the difficult circumstances many businesses find themselves in, the CRA has also said that it will not penalize a filer where a return is filed late provided that it is filed by June 30th.
If your business only has to file annually, any HST instalment payments due on or after March 27, 2020, and prior to June 2020 can be deferred until the end of June 2020. Again, there will not be any penalty or interest charged as long as the required amount is paid by the end of June 2020.
HST returns that are filed electronically will be processed as usual unless they require a CRA representative to become involved to get additional information or documents. In the case where a CRA human needs to get involved, those returns will not be processed until everything returns to normal. If you file your HST return by paper, they will not be processed until things return to normal.
If you are entitled to an HST refund, as long as you filed electronically, the refund will be processed normally and paid. This assumes that you do not owe any other amount to CRA that they could offset your refund against.
“Death, taxes and childbirth! There’s never any convenient time for any of them.”
― Margaret Mitchell, Gone with the Wind
An Ontario business using the HST in Ontario 2020 coronavirus deferral
It is certainly understandable that many businesses will take advantage of this deferral opportunity. The COVID-19 situation is unbearable for many companies. Businesses are either closed down or in most cases, earning fewer sales revenue. Cash needs to be preserved, and there may be more pressing needs for the cash than to pay the HST liability that is payable at this time.
However, there are five issues that I have identified that entrepreneurs and businesses, in general, need to consider. I am not saying to take advantage of the deferral or not. I am just pointing out issues to be wary of.
So the five issues I see are:
Cash flow in June 2020 – Right now it does not look like the current situation is going to change dramatically between now and June 2020. So, on June 30, 2020, your business may be in the same or worse shape than it is now from a cash perspective. If CRA does not extend the deadline, you are no better off. The ball was just kicked down the road for a few months.
When the “all clear” is sounded – Assuming CRA does not require payment until the “all clear” is sounded, your business will need whatever cash it can get its hands on to get up and running again. These costs could be significant. Staff needs to be brought back on and marketing will have to be ramped up.
There may very well be a lag between the time you incur and pay for those up front starting up again expenses and when the cash from your sales come in. Will CRA take these real business needs into account and give more lag time? Or, given all the money the government has to spend in fighting the COVID 19 epidemic, will CRA start demanding payments immediately after the “all clear” is sounded to try to improve the government coffers as quickly as possible?
Will your HST issues be doubled? – If you are not an annual filer, then in July 2020, there will be one or more periods for which HST could be owing. Will your business have the cash to spare to make up the payment for two or more HST periods all at once if CRA demands it? This could spell cash flow trouble for businesses also.
Director liability – Directors are always liable for unremitted HST in Ontario and other provinces. If your company takes advantage of the deferral, then the Director’s liability begins to compound. There is no way of getting around it, but it is an issue to consider.
Trust claim – A business that collects HST, holds the amounts collected from its customers in trust for CRA. Any unremitted amounts owing to CRA for each reporting period is a deemed trust claim against all of the assets of the company.
“You don’t pay taxes-they take taxes.”
―
Businesses are not supposed to make use of the deemed trust amount in their cash flow. On a practical level, all businesses do. If net HST is not paid, the CRA can garnish bank accounts, accounts receivable and any other income. Although they have not yet done it, they could also confiscate other assets.
If you have a deemed trust debt owing to the CRA, the business’s property is actually the property of CRA until the debt is paid off. A business, when it operates normally, is always making sales and collecting the tax on them. In between filing periods, even if the tax is all paid up with the previous filing, there is always a stub period between filings. So, technically, this debt works as revolving debt. So CRA always has that charge over a registrant’s property.
So once everything returns to the new normal, what will happen during the lag that is needed for businesses to use cash resources to get back up and running. Will CRA collectors continue to give a grace period, or will they start hammering your business right away using its normal collection procedures to collect the outstanding debt? Only time will tell.
“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
― Winston S. Churchill
Summary
These are the issues facing entrepreneurs and their companies and businesses concerning the HST in Ontario deferment. Should you take advantage of the deferral being offered by CRA? Only you can answer that question for yourself and your business. I just wanted to highlight all of the issues that you should consider. It isn’t a simple yes or no answer.
The Ira Smith Team family hopes you and your family are staying safe, healthy and well-balanced. Our hearts go out to every person who has been affected either through inconvenience or personal family tragedy.
We are all part of our community and we have to all cooperate to help stop the spread of this infection. Social distancing and self-quarantining are sacrifices that are not optional. Families are physically separated from one another. I hope this information is helpful to you.
Ira Smith Trustee & Receiver Inc. has always employed clean and safe habits in our professional practice and continues to do so.
If anyone needs our assistance, rest assured that Ira or Brandon can still help you. Telephone consultations and/or virtual meetings are available for anyone wanting to discuss their personal or corporate situation.
“The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.”
― Mark Twain
Are you now worried about how you are going to survive? Are you worried about how long your company will be able to pay employees who are not working and meet all of its other obligations? Those worries are normal.
The Ira Smith Team understands these fears. More notably, we know the requirements of the business owner or the person who has too much individual debt. Because you are dealing with these stressful financial issues, you are anxious.
It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.
We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.
We understand that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.
Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.
“…but in this world nothing can be said to be certain, except death and taxes.”
― Benjamin Franklin
The Ira Smith Team is totally operational and both Ira and Brandon Smith are here for a telephone consultation, conference calls and virtual meetings.
Keep healthy and safe everybody.
