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Truck purchased for Corporation by SH

SH purchased two trucks for the corp personally acquiring truck financing loans - corp could not be approved. (exclusive business use)
After a few months, SH sold one truck due to cash flow issues (COVID) and used it to pay off the loan and personally paid out of pocket to cover what was short between the sale price and outstanding balance of loan.

My concern is regarding HST.

ITCs were claimed on purchase.
However, when SH sold one truck personally no HST was collected on sale price

Was the SH supposed to have charged HST on sale? Should part of the initial ITCs claimed be impacted? Or is this fine as is?

"SH purchased two trucks for the corp personally acquiring truck financing loans - corp could not be approved. (exclusive business use)
After a few months, SH sold one truck due to cash flow issues (COVID) and used it to pay off the loan and personally paid out of pocket to cover what was short between the sale price and outstanding balance of loan …ITCs were claimed on purchase."

{Slap forehead}
Some shareholders should really hire a competent Director and a competent President for their corporations - ones that know when and how to speak to the Corporations qualified Lawyer and the Corporations qualified Accountant BEFORE they act…

Without anything else, this individual, acting as Director, appears to have fraudulently claimed a GST refund from CRA by causing the Corporation to claim ITCs which did not exist…
The corporation needs to refund CRA for the ITCs claimed…unless…
The Director needs to speak to the lawyer and CPA and have those contracts examined…
Perhaps the lawyer can cure the contracts, perhaps not…

(With the ambiguous post wording, the wording of the contracts cannot be guessed at)

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I am going to risk saying this - knowing I will be corrected - but yes, the HST should have been charged on the sale of the truck. There are other ways of dealing with the areas Joe brings up but at minimum the HSTstill needs to be reported. His shortfall on the truck is larger than he had expected.

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“HST should have been charged on the sale of the truck”

Perhaps - but by whom?
Non-GST registrants are not allowed to charge GST.

GST-Registrants not only CAN charge GST, but MUST…

Although not quite as rare as a Dodo bird, individual Shareholders who are also GST-Registrants are almost as rare…

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I would want to know what name is on the ownership of the truck…

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The SH name.

The approach was for the SH to acquire the trucks on behalf of the corp.
Then the corp would make the loan payments and use the trucks exclusively for business.

As I said above… " this individual, acting as Director, appears to have fraudulently claimed a GST refund from CRA by causing the Corporation to claim ITCs which did not exist…"

Assuming you are the bookkeeper on file, I would recommend you write a memo about the problem to the CPA on file with your working papers, and suggest that the CPA might want to get the Director to have the corporation’s lawyer discuss this with the CPA on file. The Director has already demonstrated how wrong he handles things without proper professional assistance and know-how about legal documentation.
Either way, with or without curative legal documentation, this Director has wrongly and falsely accounted for HST, diddling CRA out of money, so that needs to be fixed up, according to the final versions of the appropriate documentation.
Severe penalties could otherwise result, so the extra CPA and Lawyer fees will be cheaper than penalties, fines, and jail…

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Joe, we both know that this individual and corporation had no CPA and no lawyer on file. As the bookkeeper, I would suggest that the best approach might be to adjust the ITC’s filed so the credit gets repaid to CRA. I take back my earlier response where I said he needs to collect HST on the sale. Not everything that is done through ignorance is fraudulent by intent.

There are many bookkeepers who can help out in a situation like this without spending $450 an hour for lawyers and accountants. This situation can be resolved without severe fines, penalties or jail time but not without cost to the shareholder or the corporation.

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Out in the real world of small business, this type of scenario is not uncommon. Unfortunately, the HST is an issue that he had not counted on and needs to be fixed.

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“Joe, we both know that this individual and corporation had no CPA and no lawyer on file.”

.
If that is the case, then you have spotted the core reason why this individual may well land up in jail…

Bookkeepers cannot just invent fantasy entries as they please.
That gives an exact description of the phrase “cooking the books”
A legally responsible individual has to certify each GST/HST return…

This Director would be extremely foolish to follow “advice by guessing” - it may well have been what landed him in trouble in the first place…

Both Fraud and Gross Negligence are each capable of landing “businessmen” in very hot water…

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Not too many bookkeepers create the fantasy entries. This shareholder was doing his own “accounting”. Unfortunately, in the past, Intuit has encouraged small business owners that they can “do it themselves” with Quickbooks.

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"This shareholder was doing his own “accounting”.

If that is the case and If he pleads that, it won’t protect him from being prosecuted for Gross Negligence and falsifying GST returns…

He should be advised to get professional assistance - he needs it…

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But that doesn’t mean that a lawyer or CPA must file every GST/HST return…
Or that people end up going to jail for making a “mistake” on an HST return…

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There are professionals other than CPAs and lawyers…

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Actually it does mean they could go to jail - Gross Negligence resulting in Trust fraud that benefits the maker is not a “mistake”…
.
Ok, get his “professional hairdresser” to do it, since you apparently hate expert CPAs and lawyers… but personally I can and do recommend differently…

Have a good evening!

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No, I actually respect and appreciate and use “professional” CPAs and lawyers…

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Thanks, Joe, and the same to you. Good night!

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That could be a whole new thread of disaster stories.

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I second that… ugh… the mess I have to fix

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At the risk of Joe calling me a fraudster, as he seems to call anyone who doesn’t follow his interpretation of the ITA and the ETA:

IF the shareholder was acting as an agent for the corporation, and was holding the truck in trust then it is the principle (ie the corporation) who would pay and charge the GST/HST on the truck purchase and sale respectively.

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/gi-012/agents.html

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