Simplifying VAT in the UK compared to GST in Canada

This recent post on the SME Blog talks about the recent changes the UK has made to VAT, in that they are now offering small businesses the ability to account for and remit VAT on a cash basis, rather than accrual:

The VAT cash accounting scheme allows you to account for VAT (output tax) on your sales on the basis of payments you receive, rather than on tax invoices you issue. However, if you choose to use the scheme, you can only reclaim the VAT incurred on your purchases (input tax) once you pay your supplier.

This is good news for businesses with large trade debtors and good news generally for cashflow.

The equivalent value-added tax in Canada, the GST, requires businesses use only the accrual method, which means even if you haven’t collected the tax on sales, you have to remit. That being said, you still get to claim the GST you haven’t yet paid on purchases against those credit sales, minimizing the timing difference impact.

In Canada, small businesses are also able to use the quick method to calculate their remittance, or the simplified method to calculate their GST owed (known as input tax credits).

Both methods simplify the accounting but do not address the cash flow problems in the same way the UK has done with their cash scheme.

So what is better? Helping small businesses save time and money accounting for their tax remittances, or helping small businesses match the timing of their cash inflows and outflows from sales and purchases to tax remittances? I’m inclined to think the latter is more helpful.

AMT woes south of the border – what about us?

The Alternative Minimum Tax is getting a lot of coverage in the US since changes made by Reagan in the 80s are causing it to affect 80% of “families with an adjusted gross income of $75,000 to $100,000,” in other words, a lot of frickin’ families.

When the tax was first introduced in 1969, it was intended to catch only the wealthiest members of American society who were paying little to no tax thanks to various deductions, loopholes and shelters.

But in 1986, … the law was subtly changed to aim at a wholly different set of deductions, the ones that everyone gets, like the personal exemption, state and local taxes, the standard deduction, certain expenses like union dues and even some medical costs for the seriously ill. At the same time it removed and revised some of the exotic investment deductions.

We have AMT in Canada, but since I’m not reading stories in our media about this situation I’m assuming it isn’t a problem. I suppose the fact that we weren’t taught anything about it in any of the three tax courses I took in school supports the assumption that this doesn’t affect nearly as many Canadians.

If I had to guess, it’s because we missed the 1986 adjustments that occurred south of the border.

Continue reading “AMT woes south of the border – what about us?”

City budget indecipherable to ordinary citizens

Toronto released their budget this week and other than the usual tax hikes for property owners, this interesting post on Eye Daily about the gibberish and jargon of a city budget.

It lists the specialized terms the budget contains to describe its expenditures and revenues, and the list is incomprehensible, even to me, a soon-to-be Chartered Accountant:

  • OMBI
  • COTA
  • Net pressures
  • Revenue tools
  • Adjusted pressure
  • MPMP
  • ABCs
  • Single tier and regional CAOs
  • COLA
  • Assessment growth
  • Social service cost sharing
  • OW COA
  • EMS
  • CM & CFO
  • FY Incremental Outlook
  • Full cost recovery model

It’s a little ridiculous, no? How do they expect ordinary citizens to understand where their property taxes are going, if I can’t even decipher the above?

The link above contains comments on the original post that outline what the terms most likely mean, although no one from the City has come forward with the official definitions.

Budget move likely to discourage global expansion

Yesterday’s Globe and Mail:

The federal Finance Department is acknowledging it could reap a bonanza of additional tax revenue from a controversial budget move to scrap the deductibility of interest that companies incur to fund foreign operations.

I’m trying to understand the logic here but I can’t.

Caribbean beachI know this is money leaving the country, but shouldn’t the law focus on foreign ownership of the overseas operations at least, if that’s what this is about? After all, the money leaving has already been taxed anyway.

As well, this is inconsistent with how interest is generally treated for tax – it’s deductible if used to earn income. It was simpler that way, and when simplicity and consistency intersect within tax law, that’s a good thing.

And this from the CBC’s budget coverage:

The government will crack down on corporations that use tax havens to avoid paying taxes by eliminating the deductibility of interest incurred to invest in business operations abroad, improving information agreements with other countries and providing more resources to the Canada Revenue Agency to strengthen their audit and enforcement activities.

But I think the government could do more to stop this by focusing on the last two points: strengthening information agreements with the countries deemed tax havens, and increasing audits where there is suspected abuse.

Otherwise I expect foreign investment by Canadian firms to decrease sharply. It’s never a good thing when tax influences decisions, but this is going to hurt our global competitiveness too. It sucks when a few bad apples ruin it for everyone.

So it sounds like it’s similar to proposed legislation I blogged about a while ago in the US brought forward by a group which included Barack Obama.

Auditor, noun: an accountant with a grudge

From Lickspittle Shite-a-bed comes this very funny “history” of auditors, including this gem:

Stocktaking is a strange version of foreplay perculiar to auditors. The audit pack will arrive at an industrial premises at 6am in the morning and demand to know how many widgets they have. The auditors will then spend many happy hours counting the widgets and comparing their results to the figures on the company stock system. The more unexpected discrepancies that they find, the more sexually aroused they become. If at the end of the day they conclude that the company has been overstating their widgets, they will spontaneously orgasm en masse and begin to practice their double-entry by way of celebration. It doesn’t have to be widgets, it could be grains of sand. So long as its something which there is absolutely no value in counting, it will do the trick.

Simply hilarious. Have a great weekend, busy season is nearly over!

(Via Accman.)