June 1996
the CEN-TAPEDE
david ingram's US/Canadian Newsletter June
18, 1996
June 17, 1996 was the filing deadline for U.S.
citizens (or green card holders out of the U.S.) and Canadians with non Dec
31/95 year ends to file their 1995 Canadian and American tax returns.
If you missed it, be sure and catch up now. Penalties are too large to
ignore. In Canada, a new and sneaky penalty is that if you are late when you
do not owe tax, it will be counted as a prior late return and your penalty
for a late return when you "do owe" tax is doubled.
And! Do NOT ignore those INSTALLMENT NOTICES FROM REVENUE CANADA. The new
rules require installment payments when your unpaid tax exceeds $2,000 two
out of the last three years. In one case where $400,000 had already being
paid, a $70,000 shortfall created a $6,000+ bill for "installment"
interest and a $2,000+ bill for late payment of the installments.
TAXPAYER IDENTIFICATION
NUMBERS FOR UNITED STATES Page 171
G S T Letter to Prime Minister Chretien Page 172
FINAL REGULATIONS REQUIRE INDIVIDUAL TAXPAYER
IDENTIFICATION NUMBERS (ITIN or TIN) FOR U.S.
Up until February, 1996, it was relatively easy to get a United States
Social Security number if you needed it for bank accounts or to report
rental income in the United States. Filling out a one page SS5 form and
showing up at the Bellingham office of the Social Security Administration
was all that was necessary (you did need some identification). At that time,
the card issued would have "not valid for employment" stamped on
it and you had a number.
In February, 1996 this was stopped and individuals who needed a number to
report the sale of their summer home in Birch Bay or winter home in Florida
were told to file their tax return with no number and that the IRS would
issue a request for an SSN and one would be issued.
That has changed again. New regulations which seem to take effect on May 23,
1996 require that an individual MUST HAVE a "TIN" BEFORE filing
their U.S. Tax return which means you must apply for the number quite a
while before filing the return. The IRS will not accept applications until
after July 1, 1996.
"TINS" will be required for Estate Tax returns, Income Tax
Returns, and Gift Tax returns. This means that if you die owning U.S. stock
(could be in Canada) or a seasonal residence in the U.S., or a rental
property in the States, you better get your number now.
Apply on form W-7. Reg 301.6109-1(h)(1) requires that a foreign person
furnish a TIN on a tax return filed after 1996. Applicants must supply
documentary evidence to establish their alien status. Examples of acceptable
evidence would be documents such as a passport, driver's licence, birth
certificate, identity cards, immigration documents, etc.
Please note that this is not a valid number for an individual who is in the
U.S. with a green card or some other working visas such as a L1, H2B, or TN
(Treaty NAFTA) visa. This person must still obtain a legitimate Social
Security Number
The following page is the text of a letter to the Prime Minister of
Canada:
the CEN-TA GROUP
201 Capilano Mall
935 Marine Drive (at Hanes)
North Vancouver, BC, V7P 1S3
(604) 649-4755 - Fax to (604) 649-4759
June 18, 1996
Rt Hon Jean Chretien
Prime Minister of Canada
House of Commons
Ottawa, Ontario, CANADA, K1A 0A6
Dear Prime Minister
Re:
GOODS and SERVICES TAX
It is imperative that the present small business threshold (starting point)
for collecting GST be reduced from $30,000 to $1,000.
The following explains in more detail:
Much fuss has been made about the Goods and Services Tax as a
"TAX". After all, no one wants tax. However, its only real
"fault" was in its implementation and its perception as a
"new" tax.
The main problem with the GST comes from the public's perception that
individuals are "getting away" without paying the tax.
I agree that there are many individuals who are cheating on the GST.
However, there are far more people who are giving the "impression"
of cheating on the GST, when, in fact, they are not.
Let me explain.
No person has to register to collect GST unless he expects his or her
business to take in (gross) more than $30,000 per calender year.
This situation creates several unfortunate results with the main one being
the:
UNFAIR PLAYING FIELD
A commercial residential house painter with two or three trucks HAS TO
charge GST because the business will gross more than $30,000. This means
that if a fair price for the labour part of painting a house is $2,000, the
commercial business painter has to charge $140.00 Goods and Services
Tax.
At the same time, an equally qualified painter with a full time job and a
part-time painting business which will gross less than $30,000 this year,
can LEGALLY do the same job for the same $2,000 and the homeowner saves a
very real $140.00 in GST. (The non-registered painter has the homeowner buy
his or her own paint. The GST is paid at the paint store and the price of
the paint is not included in the painter's gross income for purposes of the
$30,000.)
Please note that this is legal - it is NOT the "underground
economy" - it is the way the system is set up.
The "part-time" painter can pick up an extra $29,999.00 of labour
income without charging GST. He can pay his income tax on the $29,999 with
no fear of reprisals and no tax evasion or even avoidance.
However, it does create a tempting problem with the $30,000 threshold. If
someone has already done his or her $29,500 of business, he or she
"might be" tempted to not report the next $2,000 deal so that he
or she does not have to get involved with GST.
I certainly know this is likely true because I regularly have clients who
refuse to do more than $30,000 business in order to avoid the hassles of GST
registration and accounting.
This fact is a negative on the economy. One highly qualified client just
quits when he hits the $29,000 level. Goes on vacation. Takes a rest. And he
is dealing with commercial clients who could use the GST as an input credit
so he does not have a market advantage by not charging.
He is, however, sure that his clients think he is cheating by "not
charging" them GST. However, he is not cheating any one but himself.
PENALIZING HIMSELF
In fact, he would have more money if he did charge GST because he could use
the GST paid out for his services as an input tax credit against his
remittances. But it does not matter. This man does not want to be involved
with GST. The IMPRESSION however, is that he is part of the UNDERGROUND
ECONOMY. If the threshold was lower, he would have no choice. He would have
to charge and would do so because he needs the money to live.
GROWTH OF SELF-EMPLOYED HOME BASED BUSINESSES
It is important to remember that when first conceived in the May, 1985
budget, there were far fewer self-employed people. The recent growth of home
based businesses and the $30,000 threshold has meant that far more people
are exempt from having to collect the tax than may have been thought of at
implementation.
DIFFERENT COSTS TO LIVE IN DIFFERENT PARTS OF CANADA
The $30,000 threshold / limitation means that effectively, persons in many
parts of the country can be in business and make a living being
self-employed without having to collect GST.
This may not be true in Downtown Vancouver, but in Selkirk, Manitoba;
Stephensville, New Brunswick; Trois Riviere, Quebec; Canmore, Alberta;
Princeton, BC; and a thousand other places in Canada, it would be possible
for one partner in a marriage to gross $29,000 in their "at home"
secretarial service business and the other partner to gross $29,000 in his
or her "at home" accounting business leaving them with $58,000 and
not having to collect any GST.
Please note that in this case, there is an economic advantage to not
collecting here because if they are catering to other "home
businesses" who are not registered, then the other business cannot use
a GST input tax credit anyway.
A larger accounting practice which is registered has to charge a
non-registered business an extra 7% just to stay even on the fee without
taking into account commercial rents, etc.
Therefore, in some small towns in Canada, you might have 60% or more of the
self-employed NOT COLLECTING GST "LEGALLY!"
THE SOLUTION
To get rid of this "perception" of illegal underground economy
stuff where it really doesn't exist, the $30,000 limit has to be reduced
dramatically down to a figure that could be as low as $1,000. This would
still allow the neighbour's kids to cut your grass but would, for the most
part, level the playing field for others in business and would identify
clearly for everyone, who is really cheating by not charging and who is just
leaving the impression that they are not charging because it is a special
deal and we are co-conspirators.
One employed truck driver's "house painting on the side" business
doubled when GST came in because even though he does not have to charge GST,
he pretends it is all underground and a special deal. He meticulously
records his cash income but stops extra work at a couple of thousand dollars
a month.
He makes sure his gross income is limited to the labour part only by having
the home owner buy the paint, brushes, and cleaners. He provides only drop
cloths, himself and a couple of ladders, and stays under the $30,000 limit.
Yours truly
david ingram
