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Taxation — Integrated Problem 8
Scenario (100 minutes)
It is May 1, 2021, and you, CPA, have a small accounting firm. You have just met with
Sydney Smith, a talented amateur photographer who plans to start a photography
business. She would like to know if she needs to register for a GST number for her new
business, and if so, when. Sydney is located in a province where GST is collected
separately from PST.
Sydney has asked you to prepare a memo outlining if, and when, she is required to
register for GST. For this task you do not need to consider PST or other provincial
Sydney provided you with the following information:
• Revenue will be 30% “commercial” in nature. The commercial customers will be
GST registrants that provide taxable supplies and are therefore entitled to recover
the GST that they pay via the input tax credit mechanism.
The remainder of her revenue will come from individuals for wedding and sportsteam photographs.
• She doesn’t expect to earn any revenue until July of the current year (2021). Her
estimated revenue for the next four quarters is as follows:
|July 1 to September 30||$ 5,000|
|October 1 to December 31||7,500|
|January 1 to March 31||10,000|
|Each quarter thereafter||12,500|
Taxation — Integrated Problem 8 Problem
2 / 3
• Sydney’s father will lend her some money to get started. Her camera gear costs
$10,000 (plus taxes), and her annual insurance premium is $2,500, due when the
policy starts on July 1. She will probably spend about $3,300 a year on equipment
after her first year of operations, as the technology quickly becomes obsolete.
• Using digital equipment will save Sydney a lot of money, but she still expects to
spend about 10% of her revenue on getting prints processed. Her other expenses
should stay constant at about $2,000 per quarter.
Your response should be no longer than one page.
Sydney has heard there are two ways for small businesses to track GST (the quick
method and the simplified input tax credit method), and she would like some basic
information on the difference between them. You should also include a quantitative
analysis, in Excel, to determine which method Sydney should adopt. This entails
calculating the net GST remittances under both methods and determining which option
would benefit Sydney. Assume that the applicable remittance rate is 3.6%.
Your response should be no longer than two pages, excluding any Excel files.
Sydney would like to better understand some of the administrative and compliance
aspects of GST filing. She has put together the following list of questions:
1. Based on your earlier advice, I have now registered my business for GST. I am an
annual filer, and my first fiscal year end will be December 31, 2021. When do I need
to file my GST return, and when do I need to remit any balance owing?
2. What happens if I do not remit my GST on time?
3. As my business grows, I expect that I will eventually need to pay GST instalments.
When would those be required, and once they are required, how are they calculated,
and how often would I need to make instalments?
Taxation — Integrated Problem 8 Problem
3 / 3
4. As my business grows, I might eventually incorporate my business. From a GST
perspective, is there anything I should be aware of when I do this? Will anything
change with respect to the GST (ignore income tax implications)? I would likely
transfer my proprietorship assets into the corporation, and of course I would be a
director of the corporation.
5. If I disagree with the Canada Revenue Agency (CRA) over a GST assessment, what
can I do to dispute the assessment? Is the process any different from disputing an
income tax reassessment?
Your response should be no longer than two pages.
Please complete a survey on your experience in Taxation, located in the link below, and
submit a screenshot of the survey completion page with your integrated problem 8
(example screenshot provided below). Grades are given for survey completion.
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