Taxation Issues Within A/P & A/RTaxation Issues Within A/P & A/R

Jan. 11, 2008

FINANCIAL INFORMATION

SYSTEM

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Topics• GST Rate Change to 5%

Temporary Tax codes Impact on Departmental accounts Purchase and Sales The decision process Impact on processing

• Quick Review What is GST? What is OST?

• General Tax implications on purchases Points to consider GST on purchases OST on purchases

• General Tax implications on sales Points to consider GST on sales OST on sales

• Paying a tax only invoice

• Common Tax codes Common purchasing tax codes Common sales tax codes

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GST Rate Change to 5% - Temp Tax

Codes

Standard FIS Tax Codes having a GST component will be updated to reflect the new GST rate of 5%.

Effective January 1, 2008…

* Since the tax rate is determined at the time of reimbursement and NOT at the time of occurrence, no temporary tax code is required. A new tax code, “IF”, has been introduced to properly reflect the tax on reimbursements made using allowance or per diem rates.

A copy of this table is posted at: http://www.finance.utoronto.ca/Page943.aspx

Temporary Tax Codes (reflecting the GST rate of 6%) will be set up for users to use during the transition period only

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GST Rate Change to 5% - Impact on Dept. Accts.

SALES…As a result of the GST rate reduction, the general impact on departmental accounts is as follows:

PURCHASES…The GST rebate remains the same, at 67%, for most purchases at UofT. The general impact on departmental accounts is as follows:

For transitional FIS processing requirements, see memo dated December 6, 2007 at: http://www.finance.utoronto.ca/Assets/memos/alerts/071206gst.pdf or contact your FAST Team Representatives.

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GST Rate Change to 5% - Impact on Dept.

Accts.

NET PRICE(i.e. $100.00)

OST 8% OF NET(i.e. $8.00)

GST 5% OF NET (i.e. $5.00)

2/3 OF 5% PAID BY THE GOV OF

CANADA

3.35 % OF NET(i.e. $3.35 never debited

from dept. accts.)

1/3 OF 5% PAID BY DEPT

1.65% OF NET(i.e. dept. remits $1.65)

Total InvoiceAmount

(i.e. $113.00)

Immediately refunded

by the University

to theDepartmen

t

GST on Purchases :GST rebate… In this example tax code IX was used – Both OST & GST were charged.

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GST on Purchases (cont’d):Effect of the 5% GST rebate on UofT DepartmentsIn this example tax code I6 is used – GST only is charged.

GST Rate Change to 5% - Impact on Dept. Accts.

105.00 -

101.65

3.35

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GST Rate Change to 5% - Impact on Dept.

Accts.

NET PRICE(i.e. $100.00)

OST 8% OF NET(i.e. $8.00)

GST 5% OF NET (i.e. $5.00)

7.6% OF 5% PAID BY THE GOV OF CANADA

.38 % OF NET(i.e. dept. retains .38 cents)

92.4% OF 5% PAID BY DEPT

4.62% OF NET(i.e. dept. remits $4.62)

Total Billed

Amount(i.e.

$113.00)

Immediately refunded

by the University

to theDepartmen

t

GST on Sales :GST rebate… In this example tax code IX was used – Both OST & GST were charged.

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GST Rate Change to 5% - Impact on Dept. Accts.

GST on Sales (cont’d):

Effect of the GST rebate on UofT DepartmentsIn this example tax code I6 was used - GST only is charged.

105.00

100.38 -

4.62 -

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GST Rate Change to 5% - Impact on Dept. Accts.

For reimbursements of Meals and Accommodation (in Canada), where a receipt is available, use tax code IE. The impact on departmental accounts is as follows:

EXPENSE REIMBURSEMENTS (relating to Meals and Accommodations or Kilometerage Allowances and Meal Per Diems) :

For the processing of reimburs. of Kilometerage, Gratuitous Accommodation Allowances and Meal Per Diems (in Canada), use the NEW tax code IF. The impact on dept accts is as follows:

* Remember, these tax rates are determined at the time of reimbursement.

(4 divided by 104 = 3.846 + 100 = 103.846) Amt. of “ IE” claim divided by 103.846% x 1.27% + the product = what will be charged to dept. accts.Example: amt of claim $134.11/103.846% = $129.14 x 1.27% = 1.64 + $129.14 = $130.78 (amt chgd to dept)

(5 divided by 105 = 4.762 + 100 = 104.762) Amt. of “IF” claim divided by 104.762% x 1.57% + the product = what will be charged to dept. accts.Example: amt of claim $47.00/104.762% = $44.83 x 1.57% = .70 + $44.83 = $45.53 (amt charged to dept)

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GST Rate Change to 5% - The decision process

Transition period (effective Jan. 1, 2008)…when to use 5% GST vs. 6% GST, the decision process:

Some things to keep in mind…

Purchases:All vendors are (should be) aware of the rules governing the transition, therefore, if a vendor invoice is received with the wrong GST tax rate, the total payable to the vendor needs to be adjusted (reduced), in addition to using the appropriate tax code to process the invoice.

Sales (depending on when the revenue was earned):A/R - In order to ensure that we receive the correct payment from our customers, we need to ensure that we also follow the rules (i.e. ensure that the DATE on the invoice supports the GST included in the billing)

Cash - Sales made on or before December 31, 2007 but processed in FIS after January 1, 2008, use the appropriate temporary tax code (i.e. GST = 6%).

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GST Rate Change to 5% - The decision process

Transition period (effective Jan. 1, 2008)…when to use 5% GST vs. 6% GST, the decision process:

General rules:

• Non-Purchase Order related invoices received/sent after Dec. 31, 2007:

Invoice is dated on or before December 31, 2007 6% GST applies

Invoice is dated on or after January 1, 2008 5% GST applies (reduce the amount payable to the vendor if they charged 6% GST, or ask for corrected invoice.)

• ALL Expense Reimbursements (regardless of tax rate on receipt):

Claims processed after January 1, 2008, must be processed at the 5% GST rate using the following tax codes:

- Meals/Accommodations IE- Meal per diem, kilometerage and gratuitous accommodation

allowances IF

- All other expense reimbursements appropriate Standard Tax Code

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GST Rate Change to 5% - The decision process

Transition period (effective Jan. 1, 2008)…when to use 5% GST vs. 6% GST, the Purchase Order related invoice decision process:General rules:

• Purchase Order related invoices received after Jan. 1, 2008, and the vendor has included GST at 6%:

Invoice is dated on or before December 31, 2007 6% GST applies; process the invoice receipt using the appropriate temporary tax code (change via the invoice receipt line item tax code field). No changes to the purchase order or goods receipt are required.

Invoice is dated on or after January 1, 2008 5% GST applies; process the invoice receipt using the appropriate standard tax code. The total amount payable to the vendor should be reduced accordingly.

NOTE: Upon processing of the invoice receipt document, the purchase order and goods receipt amounts, for that line item, will automatically recalculate using the new GST rate (i.e. your commitment totals will be reduced accordingly).

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GST Rate Change to 5% - Impact on processing

Transition period (effective Jan. 1, 2008)…when to use 5% GST vs. 6% GST, the impact on processing:

GOOD NEWS…For the most part, as mentioned on the previous slides, the only changes necessary in the processing of Purchase or Sales related transactions are:

- the potential use of the Temporary Tax code(s)- the possible recalculation of the amount payable

to the vendor based on the appropriate tax code, if the wrong tax rate was used

If you have a transaction that is out of the ordinary, please feel free to contact your FAST Team Representative!

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What is GST?

The Goods and Services Tax or GST is a federally legislated 5% tax, collected and remitted by legal entities conducting business in Canada. It is based on the consumption/supply of most goods and services within Canada.

UofT GST Policy:http://www.finance.utoronto.ca/gtfm/purchpay/gst.htm

Some helpful UofT scenarios: http://www.ams.utoronto.ca/News/AMSNewsletter/168-february2007/GSTtreatment.htm

Canada Revenue Agency (CRA):

• Home page: http://www.cra-arc.gc.ca/menu-e.html(Business >> GST/HST >> Public service bodies >> Taxable or exempt)

• GST/HST Rate Reduction in 2008 (Q&A):http://www.cra-arc.gc.ca/E/pub/gi/notice226/notice226-

e.html

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What is OST?Ontario Sales Tax, a.k.a. Provincial Sales Tax (PST), Ontario Retail Sales Tax (ORST) or Retail Sales Tax (RST) is a provincial tax that is imposed on the consumer or user of: • most goods • certain services • admission prices • insurance premiums (except auto insurance)

used or consumed in Ontario.

Procurement Services OST Guidelines:http://www.procurement.utoronto.ca/policy/pst.cfm

Ontario Ministry of Revenue:

http://www.rev.gov.on.ca/english/taxes/rst

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General Tax Implications on Purchases

Points to consider in deciding which tax code to use:

1. Type of purchase: Goods Services

2. Where did the purchase/consumption occur? Ontario Other Canadian province Foreign country

3. End use; i.e. is this expenditure 95% related to research and therefore eligible for OST exemption?

4. Determine if applicable taxes are actually reflected on the invoice; if not, you may need to “self-assess”.

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General Tax Implications on Purchases (cont’d)

GST on Purchases :GST applies to the majority of goods and non-employment services purchased by the University.

The University's suppliers (vendors) may handle GST in several ways:

GST is NOT assessed and/or collected by the supplier…

1. GST is not applicable (exempt)

2. GST is applicable but the supplier is not collecting it (foreign suppliers GST is assessed, collected, and invoiced separately, by brokerage firm)

GST is assessed and collected by the supplier.

Example A

Example B

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GST on Purchases :

A GST is assessed and/or collected by the supplier…

When an assessment of GST is indicated, the supplier must provide the GST registration number*. The GST registration number indicates that the supplier is authorized to collect the tax.

*NOTE: Although not specifically set out in the GST Act, discussions with Canada Revenue Agency (CRA) indicate that UofT has an obligation to report, to CRA, any supplier who is assessing GST without a GST registration number.

General Tax Implications on Purchases (cont’d)

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GST on Purchases :

B GST is NOT assessed and/or collected by the supplier

1. GST is not applicable (exempt)

An exempt supply is a supply of goods or services for which there is no requirement to collect and remit GST.

The most common reason for an exemption is the small trader status of the supplier. A vendor possesses that status if its sales of taxable supplies does not exceed $30,000 annually. A small trader’s certificate must be held on file for each fiscal year of the billing. The certificate must be signed by the vendor. (A faxed copy is acceptable.)

The Small Trader’s Certificate is available on the Financial Services website at: http://www.finance.utoronto.ca/Asset1466.aspx

General Tax Implications on Purchases (cont’d)

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GST on Purchases :

2. GST is applicable but the supplier is not collecting it: Foreign Suppliers

When goods are purchased from a foreign supplier, these items must pass through Customs. Acting as an agent of CRA, Customs assesses and collects GST, where appropriate.

Buying departments should always instruct foreign suppliers to include their invoice with the shipment of goods. Canada Customs can then determine whether the supplier is assessing GST. If the supplier is assessing GST but this is not evident, Canada Customs may assess it as well, resulting in a duplicate GST cost to the buying department.

B GST is NOT assessed and/or collected by the supplier

General Tax Implications on Purchases (cont’d)

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General Tax Implications on Purchases (cont’d)

GST on Purchases :

GST rebate…The University belongs to a group of organizations referred to as the MUCSH group, (Municipalities, Universities, Colleges, Schools and Hospitals), and this group is eligible for a partial rebate of GST paid on items purchased.

Where GST is applicable, UofT is rebated 67% of the GST paid, as demonstrated on slides 5 & 6.

This is reflected in the department’s accounts at the time of posting in the form of an “instant” rebate.

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General Tax Implications on Purchases (cont’d)

OST (PST) on Purchases :

Under the provincial tax legislation, there are three types of OST purchases...

• Taxable• Unconditionally exempt• Conditionally exempt

Please refer to the following Procurement Services website for detailed information on OST and a comprehensive item list for each type of purchase: http://www.procurement.utoronto.ca/policy/pst.cfm

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General Tax Implications on Purchases (cont’d)

OST on Purchases :

Taxable…Generally, all tangible personal property (TPP; personal property that can be touched, seen, weighed, measured, or is perceptible to the senses) is taxable if it has a value of more than $0.21. Some services are also taxable such as the partial list below: 

• The labour to repair tangible personal property • Transient accommodation (accommodation for a period of less

than one month)   • Parking - unless provided as part of accommodation rent, in excess of 30 days • Contract for maintenance or warranty of tangible personal prop.• Insurance, NOT including automobile insurance (i.e.

snowmobiles, group benefit insurance, etc.)

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General Tax Implications on Purchases (cont’d)

OST on Purchases :

Tax rates…

OST is calculated at four different rates, depending on what is being sold:

• 8% for mOST goods and taxable services  • 5% for transient accommodation • 10% for admission to places of amusement (more than

$4.00) and sales of alcohol (sold through a licensed

establishment)   • 12% for alcohol sold through a retail store (i.e. LCBO) 

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General Tax Implications on Purchases (cont’d)

OST on Purchases :

Self-Assessment…When no OST is collected from the University, it is the University’s responsibility to pay the tax; to do this you must “self-assess”.

Important: If an invoice indicates that no OST was charged where it should have been, either request a corrected invoice indicating OST, or self-assess. Self-assessment is done when entering the FIS payment transaction, by applying the proper tax code (J3 or J5).

Criteria for Self-Assessment:Goods purchased from another province or country (a vendor not registered to collect OST), and consumed within Ontario.

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General Tax Implications on Purchases (cont’d)

 

OST on Purchases :

Unconditionally Exempt (main item)… • Food products for human consumption - not confections or prepared foods

Conditionally Exempt (partial list)…• Research equipment purchased by universities• Publications purchased by universities • Magazines purchased by subscription, newsletters and bulletins

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General Tax Implications on Purchases (cont’d)

 OST on Purchases :Conditionally Exempt: Exemptions for Universities… In order for the goods to be exempt from OST, the acquisition must be made by the University, not privately, such as by a faculty or staff member.

Procurement Services guidelines for the “Purchase of Equipment for Research Purposes, Exempt of the OST” are available at http://www.procurement.utoronto.ca/policy/pst.cfm#guidelines

Exemption certificate required for:• Equipment used directly in research only • Publications as defined by the Minister, purchased by a university for educational purposes 

Information on exemption certificates and forms, is available at the Procurement Services website: http://www.procurement.utoronto.ca/policy/pst.cfm#exemption_certificate

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General Tax Implications on Sales

Review the sales (invoice) to decide which tax code to use. Points to consider:

1. Type of sales: Goods Services

2. Is the item sold GST or OST exempt?

3. If in doubt, contact: GST: Russell Smith, Accounts Payable at 978-

2511UofT GST # 108162330RT0001

OST: Sam Campisi, Procurement Services at 946-5621

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GST on Sales : When does GST apply? UofT is registered as a charity. All sales made by the University of any personal and real property, or service are exempt, unless the sales are specifically listed as being taxable sales in the GST Manual. To inquire about contents of the GST Manual, or obtain a copy of it, please contact Russell Smith at 978-2511.

Some examples of taxable items:• Short term rental of space• Catering• Admission fees to theatres• Athletic club memberships• “some” seminars and conferences• Standard photocopying

For more information about University Sales Subject to GST see: http://www.finance.utoronto.ca/gtfm/revexprec/extrev/gst.htm

General Tax Implications on Sales (cont’d)

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Where GST is applicable, UofT retains approximately 8% (actual amount 7.6%) of the 5% GST collected for the Government.

GST on Sales :

GST rebate on sales…

As mentioned before, the University belongs to a group of organizations referred to as the MUCSH group, (Municipalities, Universities, Colleges, Schools and Hospitals). In addition to being eligible for a partial rebate of GST paid on items purchased, this group is also eligible to retain a portion of the GST collected on items sold.

This additional credit is reflected, immediately, in the department’s accounts at the time of posting (see slides 7 & 9).

General Tax Implications on Sales (cont’d)

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General Tax Implications on Sales (cont’d)

GST on Sales :Some GST Exemptions on Revenues…

• Analytical service fees• Auditing fee for graduate course• Technical services, development of software• Diploma mailing fees• Interlibrary loan fees• “Bulletin” & “UofT Magazine” advertisements• Laser printing for grad students & faculty – cost recovery

For more information about University GST sales exemptions or zero rated sale transactions: http://www.finance.utoronto.ca/gtfm/revexprec/extrev/gst.htm#gst

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General Tax Implications on Sales (cont’d)

OST on Sales :

Generally, all tangible personal property (TPP; personal property that can be touched, seen, weighed, measured, or is perceptible to the senses) is taxable if it has a value of more than $0.21.

Some examples where OST does not apply:• Locker rentals• Course descriptions• Duplicate tuition statements for income tax• Subscriptions for magazines, newsletters and bulletins

Questions? Contact Sam Campisi, Procurement Services at 946-5621.

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Paying a Tax Only Invoice

If a customs broker, other than Import Customs Services (ICS), on behalf of UofT, accepts delivery of goods entering Canada, the appropriate department will be presented with a “tax only” invoice for the GST, paid by the broker to CRA.

The challenge is to make sure that UofT gets the rebate, and the department is only charged with 33% of the total GST.

A calculation must be made assuming the invoice for the GST is 5%, in addition to the total expense of original purchase.

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Paying a Tax Only Invoice (cont’d)

The broker is paid the amount of the GST which should have been included in the original bill.

In this scenario, we assume that an invoice for $100.00 was already processed to the vendor. Now an invoice for $5.00 GST is presented to the department, by the broker, for GST they paid on the University’s behalf for that purchase.

The dept. account is debited the full original amount including taxes, to attract the GST rebate.

The dept. account is credited the original net amount (without taxes).

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Paying a Tax Only Invoice (cont’d)

The vendor is paid the correct amount ($5.00).

67% ($3.35) of the GST is rebated to UofT. Department pays 33% ($1.65) of GST only.

Simulation shows the tax calculations:

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Common Purchasing Tax CodesI6 = Purch. 5% GST, OST 0%IX = Purch. 5% GST, OST 8%I0 = Purch. GST 0%, OST 0%IE = Empl. Exp. Reimb for Meals/Accom in Canada (when a receipt is used)IF = Empl. Exp. Reimb using Per Diem allowances rates for Meals/Accom*/Kilometerage in Canada (no receipt used) I8 = Purch. GST 0%, OST 8% (foreign vendors registered for tax collection)J3 = Purch. 5% GST, OST 8% S/ASSESSJ5 = Purch. GST 0%, OST 8% S/ASSESSJ9 = Purch. GST Exempt, OST 0% (all vendors and internal alloc)

*Refers to Gratuitous Accommodation ONLY (scroll to bottom of page http://www.finance.utoronto.ca/gtfm/travel/rates.htm)

For FIS usage guidelines: http://www.finance.utoronto.ca/fast/qrg/nav/taxcodeguidel.htm ,

Questions? Contact your FAST Team representative:http://www.finance.utoronto.ca/fast/divisionalreps.htm

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Common Sales Tax Codes

O0*= SALES GST 0%, OST 0%

O7 = SALES GST Exempt, OST 0%

For services that are GST exempt or zero rated; OST exempt (services usually do not attract OST)

O4 = SALES GST 5%, OST 0%For services that are not GST exempt

O6 = SALES GST 0%, OST 8%

O9 = SALES GST Exempt, OST 8%

With any sales for tangible goods that are GST exempt; Usually with 73XXXX or 75XXXX series GL

OA = SALES GST 5%, OST 8%

For goods or services that attract GST and OST

*(letter “O”, number “0”)

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NEED HELP?

http://www.utoronto.ca/ams/help.htm Help is a facility for all four AMS subsystems: FIS, HRIS, DIS and RIS; as well as general AMS questions.

• Use the WEB form found at the above address• Complete all the information required on the form • Select the appropriate AMS module (i.e. FIS)• Click on the “Send it” button The FIS mail box is monitored during the following

hours:Monday through Friday from 9:00 a.m. to 5:00 p.m.

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F.A.S.T. Team Contacts

Manager Lorena Gaudio 978-2802lorena.gaudio@utoronto.ca

Assistant Manager Chris Dimitriadis 946-3153chris.dimitriadis@utoronto.ca

Business Analyst Darshan Harrinanan978-4042 darshan.harrinanan@utoronto.ca

Business Analyst Wanda Prochazka 946-3291 wanda.prochazka@utoronto.ca

Business Analyst Suzanne Macintyre946-3373

suzanne.macintyre@utoronto.ca

Business Analyst Angela Namaro 978-4675

(Training Coordinator) angela.namaro@utoronto.ca

Financial Services Web site: http://www.finance.utoronto.ca F.A.S.T. Team Web site: http://www.finance.utoronto.ca/fast.htm

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TheEnd

THANK YOU!