The Goods and Services Tax may seem straightforward, but the complexities surrounding it can leave many of us confused.
Farmers often find themselves in a net refund position when filing for GST. However, scenarios such as cash renting farmland, selling equipment or purchasing land can create a variety of GST filing outcomes.
The regulations are highly fact-specific, and each situation presents unique considerations. This article aims to clarify key aspects of GST relevant to agriculture, including compliance requirements and practical GST tips for farmers.
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If you are a small supplier in Canada, you are not required to register for GST. A small supplier is an entity or related group with less than $30,000 of taxable sales (including zero-rated sales) over four consecutive calendar quarters.
However, voluntary registration as a small supplier can be advantageous because it allows you to claim input tax credits (ITCs) on GST paid for purchases. Once taxable sales exceed the small supplier threshold, you must register for GST.
In Canada, taxable supplies are subject to GST, while exempt supplies are not, and zero-rated supplies are taxed at zero per cent. Many agricultural sales are considered zero-rated supplies, meaning GST is charged at zero percent, but you can still claim the ITCs on related purchases. When ITCs exceed GST collected, this results in a GST refund.
GST filing frequency depends on your annual sales. If they are below $1.5 million, you must file GST annually but can choose a more frequent reporting period.
You may choose a more frequent reporting period to expedite GST refunds. For instance, if you frequently purchase equipment or supplies, this strategy may be advantageous.
However, this requires diligent record-keeping. If records are not up to date, refunds may be delayed, making annual filing a more practical option.
Proper recordkeeping and accurate invoicing that clearly reflect both the supplier and recipient are essential for effective GST management. Keeping records organized chronologically can simplify tracking and is crucial in case of an audit.
There are several methods for tracking GST, but it is best to consult with your tax adviser to determine the most efficient method for you.
Another topic to discuss with your tax adviser is the scenario where you farm through a corporation but personally own the land. In this case, you are likely registered for GST personally.
Many farmers inquire about cancelling their personal GST number because all farming activities are conducted through the corporation. However, it is recommended that you remain registered personally to avoid negative GST implications from deregistering.
Additionally, whether you crop share land or cash rent land results in different GST implications.
There are also various GST implications when buying and selling farmland. For example, if you subdivide a parcel of your farmland, there are specific GST reporting requirements to consider.
Moreover, when purchasing a parcel of farmland, it may seem that no GST is being paid, but there are reporting requirements you must meet to avoid paying GST on the purchase.
Navigating GST can be challenging, but understanding the key aspects can help simplify the process.
Farmers are encouraged to consult with their trusted advisers to ensure compliance and that they are optimizing their GST strategies. By staying informed and organized, they can effectively manage their GST obligations and maximize the financial benefits.
Colin Miller is a chartered accountant and partner with KPMG’s tax practice in Lethbridge. Contact: colinmiller@kpmg.ca. He would like to thank Karrie Geremia and Shane Burdett of KPMG for their assistance with writing this article.
