HST Double Charging
Reader R.M. is having trouble being double-charged HST for work done on a property. The following is a lightly-edited version of his situation.
The manager begins by paying $11,300 and collecting $12,769, leaving $1469 in his pocket. But then he has to file his HST return. He will owe $1469 less the input credit of $1300 leaving a tax bill of $169. In the end the manager gets to keep $1300 (less any income taxes he would have to pay on this income). It’s possible that the manager simply doesn’t understand HST input credits and it’s the government that is pocketing the extra HST.
I’d like some thoughts from readers. Is my analysis correct? What is the best way for R.M. to correct this situation?
I have an agent managing a house for me. That means that they deal with various suppliers for maintenance and repairs. Suppliers issue invoices to my manager (not me) for work done. For example:I'm no tax expert and nobody should rely on my analysis, but based on my (limited) understanding of HST rules, it looks like the manager is making money by simply passing along the larger bill. It is the manager who can get back the extra HST that R.M. is paying.
$10,000 labour, material, etc.
$ 1,300 HST
$11,300 Total manager pays supplier
Then the manager invoices me as follows
$11,300 supplier services
$ 1,469 HST
$12,769 Total
I am paying $2,769 HST on the $10,000. This appears to be double payment of HST by me. The original supplier has collected the HST and will remit that amount. But the manager has done nothing more than pay the supplier bill, which included the HST and should pass on to me nothing more than the 11,300. (Management fees are charged separately to me.)
Is my reasoning correct? When the manager pays a bill for me which included HST, then is it incorrect to be billing me in the above manner? If I am wrong, then how do I solve the problem and pay only the $1,300 HST?
The manager begins by paying $11,300 and collecting $12,769, leaving $1469 in his pocket. But then he has to file his HST return. He will owe $1469 less the input credit of $1300 leaving a tax bill of $169. In the end the manager gets to keep $1300 (less any income taxes he would have to pay on this income). It’s possible that the manager simply doesn’t understand HST input credits and it’s the government that is pocketing the extra HST.
I’d like some thoughts from readers. Is my analysis correct? What is the best way for R.M. to correct this situation?
From my experience in managing with construction contracts (as a sub consultant certifying payments) the tax (was GST, now HST) basically flows through. The formula he should be paying the manager is (Subcontractor pre tax + management fee) + HST.
ReplyDeleteIt used to be {(sub contractor + PST) + Management fee} + PST & GST. That was tax on tax, but now with HST that is eliminated
@Alex: If I understand you correctly, you are saying that R.M. should only be paying $11,300 (based on the assumption that management fees are handled separately).
ReplyDeleteIt is also my understanding that R.M. is paying the tax twice and should correct the situation. Discussing the situation calmly with the project manager and an accountant should resolve it.
ReplyDeleteThis is a complete mistake - adding twice the HST. I come from a country with Value Added Tax(VAT), which is the fat cousin of GST (18-21% and lately in some places in Europe it went to 24%) so I had to deal with this kind of calculations in the past. VAT/HST is applied on the difference. I.e. one buys a product/service for 10$ and pays 1.3$ in HST. Then one adds 2$ markup and resells that product/service. The new HST will be applied to 12$ so it will become 1.56$ - so the new buyer will pay only 0.36$ more in HST. The new person, let's say wants to resell the product, will only turn to government 0.36$ as HST, because one will remove the original HST paid to the initial contractor. So, no, HST should never applied twice.
ReplyDeleteI apologize for the dark cloud that came over my mind when writing the previous comment :)) 0.26$ is the difference between 1.56 and 1.3!
ReplyDelete@ Michael, that is correct if the agent is invoicing separately for their management fees.
ReplyDeleteThis is one of the most frequent overlooked benefits of the HST. No more double taxation.