Canadian Sales Tax
“We’ve got it all covered, thanks,” is what companies usually tell us regarding the “Reverse Audit of Canadian Sales Tax (GST/HST).” Unfortunately, that’s a common misconception. Another common misconception is that companies can complete and file Canadian sales tax returns on time with 100% compliance and credit maximization.
When things are going great, it’s easy to assume that no money falls off the table. The reality is that most companies who sell goods and services in or to Canada are unknowingly paying the incorrect amount of Canadian sales tax for a very long time, and therefore are paying the ultimate price of forfeiting additional savings.
Why Sales Tax Overpayments Happen
Inadequate Tax Knowledge & Compliance
There is an inadequate communication of tax rules and regulations provided by the Canada Revenue Agency (CRA). Consequently, the personnel performing the tax accounting functions are ill-informed to take advantage of all the eligible refunds and credits. Conversely, this also leads to poor compliance, which exposes the company to tax assessments, with interest and penalties when audited by the tax authorities.
System Errors
Because of incorrect system configurations, A/P system errors or general system errors result in wrong tax percentages being captured on input tax credits and sales transactions. These errors are then reflected in the company’s monthly tax returns.
Human Errors
Human errors occur because there is a need to rapidly process a large volume of A/P and sales invoices. These errors result in input tax credits missed or captured incorrectly, and sales recorded incorrectly. Naturally, human errors are magnified by inadequate tax knowledge and system errors.
Often, these compliance errors result in significant overpayments of taxes that erode the companies’ bottom line.
Today, companies realize that regularly implementing a reverse audit strategy to identify and reclaim overpayments in Canadian sales taxes is a pro-active way to be more profitable. Moreover, they consider sales tax compliance, and they mitigate the risk of further costs arising in the form of reassessment and penalties.
A 3-Phase Reverse Audit Process
Our reverse audit goal is to maximize all eligible refunds while ensuring compliance. With this in mind, our specialists perform a non-intrusive comprehensive review of all Canadian A/P, Canadian sales transactions, and Canadian sales taxes paid to identify recovery opportunities.
Phase 1
We commence our review by analyzing all the purchase and sales data and reconciling the monthly tax returns. Compliance knowledge and human errors, such as over and underpayments, missed input tax credits, incorrect currency conversion, and other issues such as various discounts and deposits, are then investigated, confirmed, documented, and supported for refund purposes.
Phase 2
Next, we identify system errors in the form of incorrect tax percentages being captured on transactions, as a result of the incorrect system configuration. This regularly occurs as a result of miscommunication between parties filing the tax returns and those calibrating the accounting systems.
Phase 3
Lastly, our comprehensive audit applies an extra audit layer to find additional recoveries with a focus on special proprietary issues outside of the regular accounts payable A/P input tax credits.
Once the audit is complete, a detailed written report is provided outlining the results which identify the areas of opportunity.
Upon client approval, our consultants prepare and file all refund claims with the tax authority and await approval of the refunds.
Our end-to-end service includes the management of all claims from start to finish and we work directly with the Canadian tax authorities should they have any questions regarding the refund claims.
