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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
Re:
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 calendar
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.
PENALIZING 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!"
THE SOLUTION
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.
Yours truly
david ingram
Copyright © 1996-2002 The CEN-TA Group
All rights Reserved
david ingram - [email protected]
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - (604) 913-9123 www.centa.com
Cell is (604) 657-8451 (10 AM to 10 PM seven days a week)
US / CANADA / MEXICO
Working Visa and Income Tax Specialists
Be ALERT, the world needs more "lerts"
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