david ingram's US/Canadian Newsletter June 18, 1996
June 17, 1996 was the filing deadline for U.S. citizens (or green card holders out of the U.S.) and Canadians with non Dec 31/95 year ends to file their 1995 Canadian and American tax returns.
If you missed it, be sure and catch up now. Penalties are too large to ignore. In Canada, a new and sneaky penalty is that if you are late when you do not owe tax, it will be counted as a prior late return and your penalty for a late return when you "do owe" tax is doubled.
And! Do NOT ignore those INSTALLMENT NOTICES FROM REVENUE CANADA. The new rules require installment payments when your unpaid tax exceeds $2,000 two out of the last three years. In one case where $400,000 had already being paid, a $70,000 shortfall created a $6,000+ bill for "installment" interest and a $2,000+ bill for late payment of the installments.
TAXPAYER IDENTIFICATION NUMBERS FOR UNITED STATES Page 171
G S T Letter to Prime Minister Chretien Page 172
FINAL REGULATIONS REQUIRE INDIVIDUAL TAXPAYER IDENTIFICATION NUMBERS (ITIN or TIN) FOR U.S.
Up until February, 1996, it was relatively easy to get a United States Social Security number if you needed it for bank accounts or to report rental income in the United States. Filling out a one page SS5 form and showing up at the Bellingham office of the Social Security Administration was all that was necessary (you did need some identification). At that time, the card issued would have "not valid for employment" stamped on it and you had a number.
In February, 1996 this was stopped and individuals who needed a number to report the sale of their summer home in Birch Bay or winter home in Florida were told to file their tax return with no number and that the IRS would issue a request for an SSN and one would be issued.
That has changed again. New regulations which seem to take effect on May 23, 1996 require that an individual MUST HAVE a "TIN" BEFORE filing their U.S. Tax return which means you must apply for the number quite a while before filing the return. The IRS will not accept applications until after July 1, 1996.
"TINS" will be required for Estate Tax returns, Income Tax Returns, and Gift Tax returns. This means that if you die owning U.S. stock (could be in Canada) or a seasonal residence in the U.S., or a rental property in the States, you better get your number now.
Apply on form W-7. Reg 301.6109-1(h)(1) requires that a foreign person furnish a TIN on a tax return filed after 1996. Applicants must supply documentary evidence to establish their alien status. Examples of acceptable evidence would be documents such as a passport, driver's licence, birth certificate, identity cards, immigration documents, etc.
Please note that this is not a valid number for an individual who is in the U.S. with a green card or some other working visas such as a L1, H2B, or TN (Treaty NAFTA) visa. This person must still obtain a legitimate Social Security Number
The following page is the text of a letter to the Prime Minister of Canada:
the CEN-TA GROUP
201 Capilano Mall
935 Marine Drive (at Hanes)
North Vancouver, BC, V7P 1S3
(604) 649-4755 - Fax to (604) 649-4759
June 18, 1996
Rt Hon Jean Chretien
Prime Minister of Canada
House of Commons
Ottawa, Ontario, CANADA, K1A 0A6
Dear Prime Minister
GOODS and SERVICES TAX
It is imperative that the present small business threshold (starting point) for collecting GST be reduced from $30,000 to $1,000.
The following explains in more detail:
Much fuss has been made about the Goods and Services Tax as a "TAX". After all, no one wants tax. However, its only real "fault" was in its implementation and its perception as a "new" tax.
The main problem with the GST comes from the public's perception that individuals are "getting away" without paying the tax.
I agree that there are many individuals who are cheating on the GST.
However, there are far more people who are giving the "impression" of cheating on the GST, when, in fact, they are not.
Let me explain.
No person has to register to collect GST unless he expects his or her business to take in (gross) more than $30,000 per calender year.
This situation creates several unfortunate results with the main one being the:
UNFAIR PLAYING FIELD
A commercial residential house painter with two or three trucks HAS TO charge GST because the business will gross more than $30,000. This means that if a fair price for the labour part of painting a house is $2,000, the commercial business painter has to charge $140.00 Goods and Services Tax.
At the same time, an equally qualified painter with a full time job and a part-time painting business which will gross less than $30,000 this year, can LEGALLY do the same job for the same $2,000 and the homeowner saves a very real $140.00 in GST. (The non-registered painter has the homeowner buy his or her own paint. The GST is paid at the paint store and the price of the paint is not included in the painter's gross income for purposes of the $30,000.)
Please note that this is legal - it is NOT the "underground economy" - it is the way the system is set up.
The "part-time" painter can pick up an extra $29,999.00 of labour income without charging GST. He can pay his income tax on the $29,999 with no fear of reprisals and no tax evasion or even avoidance.
However, it does create a tempting problem with the $30,000 threshold. If someone has already done his or her $29,500 of business, he or she "might be" tempted to not report the next $2,000 deal so that he or she does not have to get involved with GST.
I certainly know this is likely true because I regularly have clients who refuse to do more than $30,000 business in order to avoid the hassles of GST registration and accounting.
This fact is a negative on the economy. One highly qualified client just quits when he hits the $29,000 level. Goes on vacation. Takes a rest. And he is dealing with commercial clients who could use the GST as an input credit so he does not have a market advantage by not charging.
He is, however, sure that his clients think he is cheating by "not charging" them GST. However, he is not cheating any one but himself.
In fact, he would have more money if he did charge GST because he could use the GST paid out for his services as an input tax credit against his remittances. But it does not matter. This man does not want to be involved with GST. The IMPRESSION however, is that he is part of the UNDERGROUND ECONOMY. If the threshold was lower, he would have no choice. He would have to charge and would do so because he needs the money to live.
GROWTH OF SELF-EMPLOYED HOME BASED BUSINESSES
It is important to remember that when first conceived in the May, 1985 budget, there were far fewer self-employed people. The recent growth of home based businesses and the $30,000 threshold has meant that far more people are exempt from having to collect the tax than may have been thought of at implementation.
DIFFERENT COSTS TO LIVE IN DIFFERENT PARTS OF CANADA
The $30,000 threshold / limitation means that effectively, persons in many parts of the country can be in business and make a living being self-employed without having to collect GST.
This may not be true in Downtown Vancouver, but in Selkirk, Manitoba; Stephensville, New Brunswick; Trois Riviere, Quebec; Canmore, Alberta; Princeton, BC; and a thousand other places in Canada, it would be possible for one partner in a marriage to gross $29,000 in their "at home" secretarial service business and the other partner to gross $29,000 in his or her "at home" accounting business leaving them with $58,000 and not having to collect any GST.
Please note that in this case, there is an economic advantage to not collecting here because if they are catering to other "home businesses" who are not registered, then the other business cannot use a GST input tax credit anyway.
A larger accounting practice which is registered has to charge a non-registered business an extra 7% just to stay even on the fee without taking into account commercial rents, etc.
Therefore, in some small towns in Canada, you might have 60% or more of the self-employed NOT COLLECTING GST "LEGALLY!"
To get rid of this "perception" of illegal underground economy stuff where it really doesn't exist, the $30,000 limit has to be reduced dramatically down to a figure that could be as low as $1,000. This would still allow the neighbour's kids to cut your grass but would, for the most part, level the playing field for others in business and would identify clearly for everyone, who is really cheating by not charging and who is just leaving the impression that they are not charging because it is a special deal and we are co-conspirators.
One employed truck driver's "house painting on the side" business doubled when GST came in because even though he does not have to charge GST, he pretends it is all underground and a special deal. He meticulously records his cash income but stops extra work at a couple of thousand dollars a month.
He makes sure his gross income is limited to the labour part only by having the home owner buy the paint, brushes, and cleaners. He provides only drop cloths, himself and a couple of ladders, and stays under the $30,000 limit.