I don’t prepare many returns which require GST filings and this is my first instance where the clients pays expenses on behalf of the client. I’m not certain whether the client needs to charge GST on the expenses she pays on behalf of her clients or only on the markup she charges.
The client provides various assistant services. For example, helps with event planning and personal errands such as shopping. If she pays for a venue, catering, food, alcohol, shopping items that she then re-bills to the clients is she required to charge GST on top of what the client essentially already paid? Or would she just need to charge/collect GST on her service (the markup)?
For example, if she paid for catering for an event which was $1,000 plus $50 GST and charged $100 for her services, would the invoice be:
$100 plus $5 GST = $105 plus $1,050 reimbursement = $1,155
Or
$1,150 plus $57.50 = $1,207.50.
I read through a similar topic/thread on here but it was construction related and the items marked up were materials which were used as inputs/altered. This client is more acting as a middleperson. From my understanding reading this CRA publication she is acting as an agent for her clients and is being reimbursed for goods/services purchased on their behalf:
Sounds like a normal business - buying “stuff” from a vendor and selling it to a customer. In which case, the normal GST rules should apply. But, I’m not a GST expert, so I don’t know if there are special rules for event planners.
If I’m being hired to prepare a tax return (and, for that matter, is it a T1, T2, or just a GST return?), I would expect the client or their bookkeeper to have already recorded the applicable GST when they recorded the transactions in the bookkeeping records (i.e. software). If there is no bookkeeping done, and they want me to figure it all out, that’s a separate job from the taxes.
On the other hand, if I’m being hired as a GST consultant, I would either charge a retainer of about $1,000 up front (because I know I’ll have to hire an expert to give me the answer) or tell the prospective client, “I don’t know. Call the GST rulings directorate.”
In my experience, this only becomes an issue when the expenses are without GST. There is no ITC, so business usually do up an invoice for the same without GST. Which I always said not a good idea.
The technical question is about “agency” and, for most practical purposes, it only matters if the amounts are significant OR if the end-recipient is a non-GST Registrant.
Otherwise most of the time it’s a wash and a pass-through.
I disagree. If you are acting as an agent, you don’t buy stuff yourself and then bill the customer. You set up the event or whatever, and have the supplier bill the principal. The agent might take the paper invoice from the supplier and hand it to the principal, but the invoice would not be made out to the agent. That’s the main thing about being an agent - you are given the legal right to incur a liability on behalf of the principal.
If you’re billing your customer for something you paid for, you’re in business, yourself - you’re not an agent.
Or in this case where the client hadn’t charged/collected GST and would now be on the hook for it. But reading through the examples for “Expenses incurred as agent” in the GI-197 Out-of-Pocket Expenses CRA publication I’m confident the majority of the client’s expenses are incurred as agent.
Of course there would be situations where people pay for things on behalf of what you labelled as the principal. That is part of the service/value add. The principal doesn’t have to worry about making the arrangements and paying multiple invoices/vendors. It is all taken care of on their behalf and they’re billed once. It occurs frequently enough for CRA to have a publication defining the situation with examples of when it does and doesn’t occur.
I have recently had to address this same situation for both an architect and a lawyer.
The architect will arrange for permits from the city. The city does not charge HST on the permit. However, they are allowed to do so, because of how this is written into the act. The act says that, if a government issues a permit, that permit is without tax. But if the architect gets the permit on behalf of the client, then the architect isn’t allows the same exemption.
For the lawyer, in land transfer records, there is a fee for the land record, and a taxable fee for the service of obtaining the land transfer records. But when the lawyer charges for this within their disbursements (per the ruling which the lawyer obtained several years earlier,) they are required to charge HST on the entire transaction.