income tax
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This article appears in the March 2023 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.

GST/HST on tips

Generally, GST/HST does not apply to tips and gratuities. However, the CRA has long taken the position that GST/HST applies when a tip is automatically charged on an invoice. The issue came up in a November 2022 Tax Court of Canada case in which the CRA had assessed an Ontario banquet hall for not collecting HST on tipped amounts. The banquet hall had been charging HST for listed services, such as food and drink, and adding a mandatory 15% tip calculated on the pre-HST total for services. The hall owner argued that HST shouldn’t apply to the tipped amount as it was not given in exchange for services, but rather distributed to staff.

However, the court found that because the tip was “effectively non-negotiable, pre-calculated and arithmetically correlative to the taxable services,” HST should have been charged, collected and remitted on the gratuity. Make sure your clients who own service industry businesses in which an automatic gratuity may be applied to the price of a service are aware of the CRA’s position on mandatory tips and the GST/HST.

Section 116 certificate and the UHT

Currently, when a non-resident sells certain taxable Canadian property, such as real estate located in Canada, the Canada Revenue Agency (CRA) will provide documentation confirming the non-resident has paid all tax related to the sale, known as a Section 116 certificate of compliance. Typically, a purchaser will require a non-resident vendor to obtain a Section 116 certificate before completing a sale of taxable Canadian property because without this certificate, the purchaser may be held liable for the tax.

Beginning this year, an application for a Section 116 certificate for a residential property will prompt a compliance review by the CRA in relation to the new 1% annual underused housing tax (UHT). Under the legislation covering the UHT, which applies to residential properties owned on or after Dec. 31, 2022, the CRA can deny a request for a certificate when a non-resident Canadian has not filed the required UHT return or paid the applicable UHT.

Make sure your clients are aware of the new UHT regime when a non-resident sells a residential property.

Deduction of Covid-19 benefit repayments

If your clients repaid their Covid-19 benefits in 2022, they may claim a corresponding deduction on their 2022 tax return, on the return for the year in which they received the benefit or split the deduction between those two returns. For taxpayers who choose either of the latter two options, the CRA has issued a new form, the T1B: Request to Deduct Federal Covid-19 Benefits Repayment in a Prior Year. After the taxpayer files the form, the CRA will reassess their return(s) to apply the deduction so that they don’t need to make a separate request to change a prior year’s return. Any benefits repaid after Dec. 31, 2022, can only be deducted in the year of the repayment.