Three indirect tax tips for successfully navigating economic uncertainty

As your business navigates the ups and downs of today’s economy, one thing has become clear: maintaining and improving cashflow is crucial to sustaining your operations. And while the landscape might feel uncertain, there are tangible steps you can take to keep your finances healthy.

One area worth exploring is how you manage GST/HST. Let’s explore three key areas that could help you free up cash and improve your organization’s resilience.

1. Optimize your GST/HST filing frequency

When you first register for GST/HST, the CRA typically assigns you a filing period, especially if your sales are under $1.5 million.

But did you know you have the option to choose a more frequent reporting period? Monthly reporting, the most frequent option available, can be a game-changer for your cashflow.

Here’s how it works: Depending on your business operations, changing your filing frequency means you can receive refunds sooner or delay your tax payments, which, in turn, can provide some much-needed flexibility during challenging times.

If your business is in the export sector, for instance, your supplies are likely subject to GST/HST at a rate of zero percent. While you’re not collecting GST/HST, you might still be paying it on related expenses, which you can recover as input tax credits. If you’re filing your returns quarterly, you’re only receiving four refund cheques a year. Switching to monthly filing could mean getting your refunds faster, which could be a cashflow boost.

Act now: Review your current filing frequency. If you think you could benefit from receiving refunds more frequently, consider switching to monthly filing.

2. Leverage intercompany transactions with Section 156 election

If your business involves intercompany transactions — like management fees or rent — with closely related Canadian corporations or partnerships that are GST/HST-registered, there’s a strategic option available that can benefit your cashflow. The Section 156 election allows you to treat certain transactions with your closely related entity as being made for nil consideration.

In other words, you wouldn’t need to charge GST/HST on these transactions.

Consider this example: ABC Ltd. leases its commercial building to XYZ Inc., its related subsidiary, for $50,000 per month, plus $2,500 in GST/HST. With the Section 156 election in effect, ABC Ltd. could forgo charging the $2,500 GST/HST, billing XYZ Inc. only the $50,000 in rent.

While XYZ Inc. could have claimed the $2,500 as an input tax credit, eliminating the tax altogether means they don’t have to wait for a refund from the CRA.

This election can provide immediate cashflow benefits by reducing the amount of money tied up in taxes. However, it’s important to note that this election must be formally filed with the CRA. If your business engages in intercompany transactions, it’s worth discussing with your tax advisor whether this option could work for your business.

Act now: Consult with your tax advisor about the Section 156 election to see if it can streamline your intercompany transactions and improve your cashflow.