Alternative Collection Method for GSTCory Lewis, C.A.E., B.A., LL.B., LL.M., Barrister & Solicitor Canada’s Direct Sellers Alternative Collection Method for Goods and Services Tax can assist multi-level marketing companies and distributors: In Canada a federal Goods and Services Tax (GST) of 7% applies to the supply of many goods and services. To ease the administrative burden to individual distributors of the paperwork involved with collecting and remitting the GST, an Alternative Collection Method (ACM) was devised which allows the direct selling company to collect the GST from the distributor when the distributor purchases the products from the direct selling company. The direct selling company then remits the GST to Revenue Canada. Because the ACM’s purpose is to alleviate the distributor’s burden of collecting and remitting the GST on the retail sales of the products, the GST which is to be collected from the distributor by the direct selling company is based on the product’s suggested retail selling price. With the ACM the direct selling company remits the GST on the suggested retail price so the distributor does not have to do so. However as the distributor would have paid the direct selling company the GST on the suggested retail price rather than on the smaller wholesale price, the distributor is able to in turn collect the GST from the retail purchaser. In general when the GST amount collected by the distributor equals the amount paid by the distributor, the distributor then simply keeps the amount collected and Revenue Canada is satisfied because Revenue Canada has already had the GST amount remitted by the direct selling company. If the direct selling company makes a sale directly to an ultimate consumer, for instance via a preferred customer plan by which the preferred customer receives a discount for having a standing order for product each month, then the direct selling company collects the GST from the preferred customer based upon the price actually paid by the preferred customer. With these two procedures Revenue Canada receives GST on the suggested retail price when a distributor purchases the product from the direct selling company for resale and Revenue Canada receives GST on the actual consideration paid when a retail purchaser purchases the product directly from the direct selling company. In both situations the distributor is spared the administrative burden of the paperwork involved with collecting and remitting the GST. The ACM is a voluntary process requiring an application to be made in order to participate. In certain cases it may be beneficial for a company not to participate. Because the GST is a creature of tax legislation the general principles outlined above are inaccurate in many instances for which the statute and enforcement policy create exceptions and alternative procedures. Consequently each particular situation requires its own analysis for compliance with, and planning for, the legal requirements. As always, specific tax advice is required prior to acting. Cory Lewis, C.A.E., B.A., LL.B., LL.M., Barrister and Solicitor, practices law with preferred areas of practice in multilevel marketing and direct selling law. He can be reached in Winnipeg, Manitoba, Canada. Telephone: (204)
792-9982 |
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