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Indirect Tax: Tips on How to Improve Your Cash Flow During COVID-19

13/04/2020


Although the Canada Revenue Agency (CRA) announced they will defer Goods and Services Tax (GST) and Harmonized Sales Tax (HST) payments or remittances that become owing on or after March 27, 2020, and before June 2020, the following tips may assist in improving your business’ cash flow:

1. GST / HST Filing Frequency (Form GST20)

Increasing Filing Frequency

If you are an annual or quarterly filer and are always in a tax refund position from your GST / HST filings, consider increasing your filing frequency to monthly.

By increasing your filing frequency, you can file and receive your refund more often to improve cash flow.

Decreasing Filing Frequency

If you are a quarterly or monthly filer and are always in a tax payable position from your GST / HST filings, consider decreasing your filing frequency to either annually or quarterly provided you (and your associated companies) are below the revenue threshold.

By decreasing your filing frequency, you can file and pay less often to conserve cash.

2. Bad Debt Recovery

If you are unable to collect on an account receivable, you may be able to claim a GST adjustment.

By properly writing off the bad debt, an input tax credit can be claimed on the uncollected GST.

Please note that if all or a portion of the bad debt (that was previously written off) is recovered and a GST adjustment was claimed on the GST return, you will be required to remit the GST amount related to the amount recovered.

3. Intercompany Transactions (Form RC4616)

If you have intercompany transactions, such as management or rent, with closely-related Canadian corporations (or partnerships) that are GST-registered, you may be able to take advantage of the Section 156 election. This election allows you to treat certain transactions with your closely-related entity as being made for nil consideration.

By utilizing this election, you would not need to charge GST on an otherwise taxable supply.

For more information on indirect tax issues, contact Edward Chow, Manager, Indirect Tax, at 778.372.5365 or [email protected].

Learn more at MNP's COVID-19 Business Advice Centre

Strategies and tools to help your company navigate the coronavirus crisis, stay resilient and take the next steps towards recovery.