ABOLITION OF THE SIMPLIFIED METHOD FOR LARGE COMPANIES: PRACTICAL ASPECTS
Revenu Québec has announced the abolition of the simplified method (5%) for large businesses (“LBEs”) as of January 1, 2014 for calculating an input tax refund (ITR) on expense accounts. Affected companies will have to modify their calculation method to determine eligible ITR.
NEW POLICY
A GE may claim an ITR for expenses incurred by an employee using one of the following methods, taking into account the restrictions applicable to GEs:
-
QST actually paid;
-
The TVQ factorial method
a. 9/109 for expense reimbursements;
b. 9,975/109,975 for expense allowances.
The method chosen must be used continuously throughout the year, and at least 90% of reimbursed expenses must be taxable expenses other than zero-rated when the factorial method is used.
DETAILS OF THE SIMPLIFIED GE METHOD BEFORE 2014
As indicated in the QST interpretation bulletin. 212-1/R4, an expense claim is a statement of personal expenses incurred by an employee in the course of his or her employer’s business. These are usually travel expenses.
Examples of eligible personal expenses :
-
Monthly cell phone charges, when the contract is in the employee’s name;
-
Expenses for a meal with a customer;
-
Gift for a customer.
Examples of non-personal expenses:
-
Meals and drinks for events such as :
– Departure of a colleague;
– Celebration of the successful completion of an exam by several employees. -
Cost of field hockey tickets given to a customer;
-
Cost of a box to attend a field hockey game.
Here’s a summary table to help you manage your expense accounts.
EXPENSES ACCOUNTS
Large-scale business* | Actual method | For expenses reimbursed after January 1, 2014
Large-scale business* | Actual method | For expenses reimbursed after January 1, 2014
| Calculation factor | ||
| TPS | QST | |
|
Refund
|
||
|
Transport (cab, train, etc.)
|
4/104 | 9/109 |
| Car rental | 4/104 | No |
| Fuel | 4/104 | No |
| Parking | 4/104 | 9/109 |
| Meals and entertainment | 4/104 x 50% | No |
| Telecommunications | 4/104 | No |
| Other | 4/104 | 9/109 |
| Allowance | ||
| Mileage allowance | 5/105 | No |
| Meal allowance | 5/105 x 50% | No |
Note 1
For expenses incurred after January 1, 2012, the calculation method must be used consistently in each expense category throughout the year.
Note 2
More than 90% of expenses must be taxable and incurred in Quebec.
Note 3
Allowances must be reasonable for income tax purposes.
Note 4
The expense statement must be supported by documentary evidence.
*Companies with sales over $10 million in their last fiscal year, including sales of associated companies for tax purposes.
Should you require any further information regarding the changes effective January 1, 2014, please do not hesitate to contact our Tax Department.
Benoit Vallée, CPA, CGA
Senior Director, Indirect Taxes
Senior Director, Indirect Taxes
514 878-0240
bvallee@demersbeaulne.com
bvallee@demersbeaulne.com
