Simulation

Quantifying GST/HST & QST paid on employees' expenses per year

You may want to assess how much tax your organization is paying on employees' expenses. Is your organization exposed to a meaningful tax risk on employees' expenses? Below is a simulation of an organization that has reimbursed to its employees supplies where 10% were incurred outside Canada. As for the supplies incurred in Canada, 90% are taxable supplies, other than zero rated supplies within the following 4 provinces.

GST, HST & QST paid by an organization on employees expenses per year

Jurisdiction Employees Expenses (%) $ 1 Million of Supplies Combined GST, HST & QST Rate Canada VAT Paid (90% taxable supplies)
Alberta 15% $ 150,000 5% $ 6,750
Ontario 40% $ 400,000 13% $ 46,800
Quebec 25% $ 250,000 14.975% $ 33,694
Nova Scotia 10% $ 100,000 15% $ 13,500
Outside Canada 10% $ 100,000 0% $ 0
Total 100% $1,000,000   $100,744

So in this example for each $1,000,000 of employees' expenses, there is approximately $100K of taxes to manage.

Generally, for a large business that is a GST and a QST registrant and exclusively engaged in commercial activities these taxes are:

  • Fully recoverable (i.e. office supplies)
  • Partially recoverable (i.e. 50% or 80% on some meals)
  • Not recoverable (i.e. tax on insurance premium)
  • Remittable (i.e. RITC on specified property and services in Prince Edward Island)
  • QST partly recoverable on expenses covered by the restricted ITR such as KM allowance, from January 1st, 2018 to December 31, 2020

For this QST gradual elimination of the restricted input tax refund, at the rate of 25% In 2018, 50% in 2019, 75% in 2020 and 100% thereafter, this tax policy represents a major spending for the Government of Quebec. Within the 2017-2018 budget of the government of Quebec, it is indicated that this measure will cost $22 million for the financial year 2017-2018, $115 million for the financial year 2018-2019, $220 million for the financial year 2019-2020 and $336 million for the financial year 2020-2021.

The QST recovery by large businesses due to the phasing out of restricted input tax credits on expenses such as meal & entertainment, km allowance, gas for vehicles of less than 3000 kg, vehicles of less than 3000 kg, telecommunication and energy is substantial. Advataxes is an employee expense software designed notably to recover QST on the phasing out of restricted ITR on reimbursement of expenses and allowances paid to employees.

Last updated on October 24, 2018