This week I
want to address a topic that’s very important for auto dealerships. The CRA made a significant change to HST rules that directly affects dealerships, and
in turn, their cash flow. The change was made a while ago yet not everyone seems
to be aware of the modification or the new developments surrounding it so I
think it’s worth mentioning.
The CRA has
narrowed the definition of HST-exempt financial services. What does this mean for dealerships? Most auto dealerships have a
finance department that helps customers arrange a lease or loan with a financial
institution. In return, the dealership receives a commission from the financial
institution. This commission, or fee the dealership receives, is no longer
always an exempt financial service – under these new rules the fee may now be considered
taxable and subject to HST.
This means you have to be careful how you structure the
agreement with your financial institution of choice and be mindful of the added
tax you may have to pay. Keeping these factors in mind
will ensure you’re not surprised in a tax audit.
The CRA made this change a while ago,
however, the Canadian Automobile Dealers Association (CADA) is working to
overturn the legislation and make dealership’s arranging financial services tax
exempt. There are possible circumstances which could enable a dealership to object
to an audit assessment from the CRA; I highly suggest you speak with your
accountant to check if your particular circumstances apply. Meanwhile, keep in
mind that if your dealership has already received an audit assessment, you have
90 days from the date of assessment to file an objection.
Have you been hit by the new HST changes? If you have I’d be
interested in hearing your story in the comment section below.
- Dave
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