What the CRA Said

Clarifying the New GST/HST Exemption for Psychotherapy and Counselling Therapy Services: What Family-Owned Enterprises Need to Know

https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2024/clarifying-new-gsthst-exemption-psychotherapy-counselling-therapy-services.html

As of June 20, 2024, a significant change has taken place in the realm of healthcare services in Canada, specifically concerning the Goods and Services Tax (GST) and Harmonized Sales Tax (HST). Psychotherapists and counselling therapists across the country may now find themselves exempt from collecting GST/HST on their services, thanks to the new regulations announced by the Canada Revenue Agency (CRA) on July 15, 2024.

For family-owned enterprises operating in the healthcare sector, understanding the implications of this change is crucial. As a tax expert with extensive experience in navigating the complexities of Canadian tax law, particularly for family businesses, I aim to clarify what this new exemption means, who it applies to, and the steps you need to take to stay compliant.

Background on GST/HST and Healthcare Services

In Canada, most goods and services are subject to GST/HST, with some exceptions, particularly in the healthcare sector. Historically, healthcare services such as medical and dental services have been exempt from GST/HST. However, the application of this exemption to other forms of therapy, such as psychotherapy and counselling therapy, has been less clear, often resulting in confusion among practitioners and their clients.

This new CRA directive provides much-needed clarity, especially for those in provinces where psychotherapy and counselling therapy services are regulated. Understanding whether your services fall under the GST/HST exemption is essential for ensuring compliance and avoiding potential penalties.

Key Points from the CRA Press Release

The CRA’s new guidelines state that, as of June 20, 2024, certain psychotherapists and counselling therapists are no longer required to charge GST/HST on their services. To qualify for this exemption, practitioners must meet specific criteria:

1. Provincial Licensing: The practitioner must be licensed with a provincial body responsible for regulating psychotherapy or counselling therapy services. Currently, psychotherapy is regulated only in Ontario, while counselling therapy is regulated in New Brunswick, Nova Scotia, and Prince Edward Island.
2. Equivalent Qualifications in Non-Regulated Provinces: If you operate in a province without a regulatory body for these services, you may still qualify for the exemption if you have the equivalent qualifications required to meet the licensing standards in a regulated province.
3. Scope of Practice: The services you provide must be within the scope of practice as defined by the regulatory standards of the province. This ensures that only those services directly related to the professional practice of psychotherapy or counselling therapy are exempt.

Impact of the Exemption on Family-Owned Enterprises

For family-owned enterprises involved in providing psychotherapy or counselling therapy services, this exemption offers a significant financial and administrative benefit. By no longer needing to charge GST/HST, you can simplify your billing processes and potentially reduce the cost of services for your clients. However, this change also requires careful tax planning to ensure you remain compliant with CRA regulations.

If your services are now fully exempt from GST/HST, you may choose to close your GST/HST account. However, if you offer a mix of exempt and non-exempt services, such as selling products or offering additional non-therapy-related services, you will need to keep your GST/HST account open and continue charging tax on those non-exempt items.

Detailed Steps for Compliance

1. Determine if Your Services Are Exempt

• Review your professional qualifications and the specific services you offer to determine if they meet the criteria outlined by the CRA.
• Consult the CRA’s detailed guidelines on exempt services to ensure full compliance.

2. Stop Charging GST/HST if Exempt

• If all your services qualify for the exemption, immediately cease charging GST/HST on those services.
• Ensure that your billing and accounting systems are updated to reflect this change.

3. Close Your GST/HST Account if Applicable

• If you no longer provide any taxable goods or services, consider closing your GST/HST account to avoid unnecessary administrative work.
• The CRA allows you to close your account online or by mail. Follow the steps outlined on the CRA’s website to complete this process.

4. Managing Mixed Services

• If you offer both exempt and non-exempt services, maintain your GST/HST account and continue to charge tax on the non-exempt items.
• Accurate record-keeping is essential to distinguish between exempt and non-exempt transactions, ensuring that you remit the correct amount of tax to the CRA.

Regional Considerations and Exclusions

It’s important to note that these new guidelines apply to practitioners outside of Quebec. In Quebec, the GST/HST rules differ, and practitioners must contact Revenu Quebec for specific guidance on their tax obligations.

Additionally, for those in provinces where psychotherapy and counselling therapy services are not regulated, understanding whether your qualifications meet the equivalent standards in regulated provinces is crucial for determining your eligibility for the exemption.

Frequently Asked Questions

1. What if I’m unsure about whether my services are exempt?

• If you’re uncertain about your eligibility for the GST/HST exemption, it’s advisable to consult with a tax professional who can review your specific situation and provide guidance.

2. How do I handle billing for mixed services?

• When offering a mix of exempt and non-exempt services, it’s important to clearly separate these on your invoices. Only charge GST/HST on the non-exempt services and ensure that your records are meticulously maintained to avoid errors.

3. What if my province introduces new regulations?

• Stay informed about regulatory changes in your province. If new regulations are introduced that affect the scope of your practice, you may need to reassess your GST/HST obligations.

The Role of Tax Professionals

Navigating the complexities of GST/HST exemptions can be challenging, particularly for family-owned enterprises that may offer a variety of services. Consulting with a tax professional can help ensure that you remain compliant with CRA regulations while maximizing the benefits of this exemption. Tailored tax advice can also assist in strategic planning, ensuring that your business is well-positioned for future growth.

Conclusion

The new GST/HST exemption for psychotherapy and counselling therapy services represents a significant change for practitioners across Canada. By understanding the requirements and taking the necessary steps to comply with CRA guidelines, you can simplify your tax obligations and focus on providing high-quality services to your clients.

If you’re a practitioner or a family-owned business in the healthcare sector, now is the time to review your GST/HST status and consult with a tax expert to ensure you’re taking full advantage of this exemption. As always, my team and I are here to guide you through these changes and help you navigate the complexities of Canadian tax law.

For more detailed information on how this exemption affects your business, feel free to reach out to us directly. Subscribe to our newsletter for regular updates on tax law changes that impact your industry, and let us help you achieve your ambitions with expert guidance every step of the way.

 

Understanding the CRA’s SimpleFile Expansion: What Lower-Income Individuals and Family-Owned Enterprises Need to Know

https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2024/over-half-million-lower-income-individuals-receive-simplefile-invitation-this-summer.html

This summer, the Canada Revenue Agency (CRA) is expanding its SimpleFile services, extending invitations to over 500,000 eligible lower-income individuals to file their tax returns easily and efficiently. This initiative aims to ensure that more Canadians, particularly those with lower incomes, can access the benefits and credits they deserve.

For family-owned enterprises that employ lower-income individuals or are part of communities where this service is being offered, understanding the implications of SimpleFile can be valuable. This blog will explain how the initiative works, who it affects, and what steps businesses can take to support their employees and ensure compliance with tax regulations.

What Is SimpleFile?

SimpleFile is a service provided by the CRA to make tax filing more accessible for Canadians who may have never filed a return or have gaps in their filing history. Initially launched as a small-scale pilot, SimpleFile has now been expanded to reach a larger audience. The service is available through phone, digital, and paper methods, allowing individuals to file their tax returns in as little as 10 minutes.

This service targets lower-income individuals with simple tax situations—those whose financial circumstances remain relatively unchanged year over year. By simplifying the filing process, SimpleFile helps ensure that these individuals can easily access important benefits and credits, such as the GST/HST credit, Canada Child Benefit, and other provincial or territorial payments.

How SimpleFile Affects Family-Owned Enterprises

For family-owned businesses, the expansion of SimpleFile may have several implications:

1. Support for Employees: If your business employs lower-income individuals, being aware of the SimpleFile initiative can help you support your employees in accessing important financial benefits. Encouraging eligible employees to use SimpleFile can contribute to their financial stability, which in turn can have a positive impact on your business.
2. Community Engagement: Family-owned businesses often play a central role in their communities. By sharing information about SimpleFile, you can help more individuals in your community file their tax returns and access the benefits they are entitled to. This can help strengthen your community and enhance your business’s reputation.
3. Tax Compliance: Understanding how SimpleFile works can help your business ensure that payroll processes and tax-related matters are aligned with CRA guidelines. This can prevent potential compliance issues and help streamline your business operations.

Understanding the SimpleFile Process

The SimpleFile process is designed to be straightforward and user-friendly. Here’s what eligible individuals need to know:

1. Invitation-Only Service: SimpleFile is available by invitation only. The CRA sends out invitations to eligible individuals, who can then choose to file their returns using the method that best suits their needs—whether by phone, online, or on paper.
2. Quick and Easy Filing: Filing through SimpleFile can take as little as 10 minutes. For phone or digital filing, individuals need to confirm some personal information and answer a few short questions. If using the phone service, those with a personal identification number (PIN) in My Account can receive an estimate of their net income, taxable income, and potential refund at the end of the call.
3. No PIN Required: A tax return can still be filed automatically even without a PIN. After the return is processed, individuals will receive a notice of assessment either by mail or in their My Account.
4. Limited-Time Availability: SimpleFile services are available for a limited time during the summer to assist individuals in filing their 2023 tax returns. The phone and digital services are accessible 21 hours a day, from 6 a.m. to 3 a.m., Eastern time, seven days a week.

The Broader Context: Accessibility in Tax Filing

The SimpleFile initiative is part of ongoing efforts to make tax filing more accessible to all Canadians. Earlier this year, the CRA invited more than 1.5 million lower-income and fixed-income individuals with simple tax situations to file their returns through SimpleFile by Phone. With a high participation rate, this initiative has proven successful in helping more Canadians meet their tax obligations and access the benefits they are entitled to.

Looking ahead, the CRA plans to further expand SimpleFile, aiming to invite two million individuals for the 2025 tax season. This continued expansion highlights the importance of accessible tax filing options for all Canadians.

The Role of Tax Professionals

For family-owned enterprises, staying informed about initiatives like SimpleFile is important for supporting your employees and ensuring compliance with CRA regulations. Consulting with a tax professional can help you navigate these changes, providing personalized advice and ensuring that your business and its stakeholders can benefit from the latest CRA initiatives.

Conclusion

The CRA’s SimpleFile service expansion is an important development in making tax filing more accessible to lower-income Canadians. For family-owned enterprises, this initiative offers an opportunity to support employees, engage with the community, and ensure compliance with tax regulations.

If you or your employees are eligible for SimpleFile, consider taking advantage of this service to file tax returns promptly. If you have any questions or need personalized advice, my team and I are here to assist you in navigating the complexities of Canadian tax law.

Call to Action

For more information on how this initiative might impact your business or to discuss your specific tax situation, please contact us today. Subscribe to our newsletter to stay informed about the latest tax developments and learn how we can help you navigate the evolving tax landscape.

 

Lessons from a $999,000 Tax Fraud Fine: What Family-Owned Enterprises Can Learn

https://www.canada.ca/en/revenue-agency/news/newsroom/criminal-investigations-actions-charges-convictions/20230908-convicted-tax-fraud-temporary-staffing-agencies-director-fined.html

On September 7, 2023, the Canada Revenue Agency (CRA) announced a significant legal outcome in the fight against tax fraud. Kwang Won Lee, a director of temporary staffing agencies in the Greater Toronto Area, was sentenced to a conditional sentence of two years less a day and fined $999,000 after pleading guilty to tax fraud. The CRA’s investigation revealed that Lee had failed to report over $3 million in personal income, evading nearly $870,000 in taxes.

This case serves as a stark reminder of the serious consequences of tax evasion and underscores the importance of compliance for all businesses, including family-owned enterprises. In this blog, we will explore the key takeaways from this case and what family-owned businesses can do to ensure they remain on the right side of the law.

Understanding the Case: Key Details

Kwang Won Lee was the director of two temporary staffing agencies, Sovereign Staffing Inc. (SSI) and Talent Savvies Inc. (TSI). Between 2013 and 2016, Lee failed to report personal income amounting to $3,072,919, which he appropriated from unreported sales and unremitted Goods and Services Tax/Harmonized Sales Tax (GST/HST) related to his companies. By using multiple bank accounts and only reporting one to the CRA, Lee was able to divert funds and evade taxes.

Ultimately, Lee was caught and fined nearly $1 million, with a significant portion of the fine payable immediately. This case illustrates the CRA’s ongoing commitment to tackling tax evasion and maintaining the integrity of Canada’s tax system.

What Family-Owned Enterprises Can Learn

For family-owned enterprises, the lessons from this case are clear:

1. Accurate Income Reporting Is Essential

• All income must be accurately reported to the CRA. Underreporting income or failing to declare it altogether can lead to severe penalties, including fines and potential jail time.
• Ensure that all sources of income, including those from multiple bank accounts or business ventures, are fully disclosed in tax filings.

2. Compliance with GST/HST Obligations

• GST/HST must be correctly calculated, collected, and remitted to the CRA. Failing to do so can result in significant penalties and interest charges, as seen in Lee’s case.
• Regularly review your GST/HST processes to ensure compliance, particularly if your business deals with multiple revenue streams or operates in different regions.

3. The Importance of Transparency in Business Operations

• Using multiple bank accounts or other methods to obscure business activities from the CRA is illegal. Transparency in financial operations is crucial to maintaining compliance and avoiding legal trouble.
• Maintain clear, accurate records of all financial transactions and ensure that these records are readily available for review if needed.

4. The Consequences of Tax Evasion

• The penalties for tax evasion are severe, as evidenced by the substantial fine and conditional sentence imposed on Lee. Beyond financial penalties, tax evasion can damage your business’s reputation and lead to long-term legal and financial consequences.
• It’s important to foster a culture of compliance within your business, ensuring that all tax obligations are met in full.

The Role of Tax Professionals in Ensuring Compliance

Navigating the complexities of tax law can be challenging, particularly for family-owned businesses that may not have dedicated tax departments. This is where the expertise of tax professionals becomes invaluable. Working with a tax advisor can help ensure that your business complies with all relevant tax laws and regulations, minimizing the risk of errors or oversights that could lead to serious consequences.

1. Regular Audits and Reviews

• Conduct regular audits of your business’s financial operations to identify any potential areas of non-compliance. A tax professional can help you conduct these audits and implement corrective measures if needed.

2. Strategic Tax Planning

• Effective tax planning can help your business optimize its tax position while remaining fully compliant with the law. A tax advisor can guide you through this process, helping you to take advantage of legitimate tax-saving opportunities without crossing any legal boundaries.

3. Responding to CRA Inquiries

• If your business is ever subject to a CRA audit or inquiry, having a tax professional on your side can make all the difference. They can help you navigate the process, respond to requests for information, and ensure that your rights are protected throughout.

Conclusion

The case of Kwang Won Lee serves as a powerful reminder of the importance of tax compliance for all businesses, including family-owned enterprises. By understanding the risks associated with tax evasion and taking proactive steps to ensure compliance, you can protect your business from the severe consequences that come with breaking the law.

If you have any concerns about your business’s tax compliance or would like to discuss your specific situation, my team and I are here to help. As experienced tax professionals, we can provide the guidance and support you need to navigate Canada’s complex tax landscape and ensure that your business remains on solid footing.

For more information on how to protect your business from the risks of tax evasion, or to schedule a consultation, please contact us today. Subscribe to our newsletter for regular updates on tax law changes and compliance tips to help keep your business in good standing with the CRA.

 

 

GST/HST Fraud and the High Cost of Non-Compliance: A Case Study from Belleville

https://www.canada.ca/en/revenue-agency/news/newsroom/criminal-investigations-actions-charges-convictions/20230623-belleville-solar-energy-business-owner-fined-gst-hst-fraud.html

On June 16, 2023, Kelly Rumble, a business owner from Belleville, Ontario, was sentenced to 12 months probation and fined over $100,000 after pleading guilty to GST/HST fraud. The Canada Revenue Agency (CRA) found that Mr. Rumble had filed false GST/HST returns for both his sole proprietorship and his company, Rumble Energy Inc. (REI), resulting in fraudulent refunds and evasion of taxes.

This case is a stark reminder of the severe consequences of tax evasion and the importance of maintaining compliance with Canada’s tax laws. For family-owned enterprises and small businesses, understanding the risks associated with tax fraud is essential. In this blog, we will explore the key lessons from this case and provide guidance on how businesses can ensure they are on the right side of the law.

The Case: What Happened?

Kelly Rumble, operating both as an individual and through his company, REI, engaged in a scheme to defraud the CRA by submitting false GST/HST returns between 2014 and 2016. Through his sole proprietorship, he claimed $105,693 in GST/HST refunds that he was not entitled to. Additionally, as the director of REI, he filed false statements in the company’s GST/HST returns, evading a further $49,245 in taxes.

The CRA’s investigation led to Rumble being fined $102,090, which represents 100% of the fraudulent claims obtained for REI and 50% of the amount he received personally. This case highlights the CRA’s commitment to cracking down on tax evasion and the serious penalties that can result from non-compliance.

Key Lessons for Family-Owned Enterprises

1. Accurate Reporting is Non-Negotiable

• Every dollar of income and every GST/HST claim must be accurately reported to the CRA. Falsifying records or inflating claims can lead to severe penalties, including fines and probation, as seen in this case.
• Ensure that all tax returns are prepared meticulously, with complete and accurate information.

2. Understand GST/HST Obligations

• GST/HST must be correctly calculated, collected, and remitted. Businesses should familiarize themselves with their obligations under the Excise Tax Act to avoid making errors that could lead to accusations of fraud.
• Regular training and updates on GST/HST rules can help your team stay compliant.

3. Transparency and Accountability in Business Operations

• It’s crucial to maintain transparency in all business operations. Using multiple entities or accounts to obscure financial activities is illegal and can result in significant penalties.
• Implement strong internal controls and conduct regular audits to ensure that all financial activities are accurately recorded and reported.

4. The Consequences of Tax Fraud are Severe

• The penalties for tax fraud extend beyond financial fines. In addition to the $102,090 fine, Rumble was placed on probation, which could have long-term implications for his business and personal life.
• Criminal charges and a criminal record can have lasting effects, including difficulties in obtaining financing, damage to reputation, and the potential for jail time.

Protecting Your Business: Steps to Ensure Compliance

For family-owned enterprises, maintaining compliance with GST/HST regulations is essential to avoid the risks associated with tax fraud. Here are some steps you can take:

1. Conduct Regular Audits

• Regularly audit your business’s financial records to ensure accuracy and compliance with tax laws. A tax professional can help identify any discrepancies and implement corrective measures.

2. Invest in Training and Education

• Keep your team informed about the latest GST/HST rules and regulations. Regular training sessions can help prevent errors and ensure that your business remains compliant.

3. Work with a Tax Professional

• Navigating the complexities of tax law can be challenging. A tax professional can provide guidance, help you optimize your tax position, and ensure that your business adheres to all relevant laws and regulations.

4. Foster a Culture of Compliance

• Encourage transparency and accountability within your business. Make it clear that compliance with tax laws is a top priority and that any attempts to evade taxes will not be tolerated.

Conclusion

The case of Kelly Rumble serves as a powerful reminder of the importance of tax compliance for all businesses, particularly family-owned enterprises. The risks associated with GST/HST fraud are significant, and the consequences can be severe. By taking proactive steps to ensure compliance, you can protect your business from legal and financial penalties and maintain a strong reputation in your industry.

If you have any concerns about your business’s GST/HST compliance or would like to discuss your specific situation, my team and I are here to help. As experienced tax professionals, we can provide the guidance and support you need to navigate Canada’s complex tax landscape and ensure that your business remains compliant.

For more information on how to protect your business from the risks of GST/HST fraud, or to schedule a consultation, please contact us today. Subscribe to our newsletter for regular updates on tax law changes and compliance tips to help keep your business in good standing with the CRA.

 

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Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning service.

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