Canarie Inc. is denying a report from the Canadian Advanced Technology Alliance that alleges its grants may be subject to federal taxes despite a recipient’s claim that the Canada Revenue Agency forced it to cough up a chunk of its research money.
Idon East Corp., which is based in St. John’s, Nfld., was recently ordered by the CRA to pay a 15 per cent HST remittal on the grant it received from Canarie, which totaled approximately $40,000. (Harmonized Sales Tax applies to residents of New Brunswick, Nova Scotia and Newfoundland and Labrador only.) Idon East also put in at least $40,000 of its own capital into the project. Since founding his business in 1983, Idon East president and CEO Herbert Bown, who has had his business audited numerous times, had never come across this issue.
“When the CRA came in to do an audit, they said, ‘You guys should have collected HST,’” said Bown, also a former CATA board member. “(The CRA) demanded we pay it.”
Idon East was one of several Atlantic companies that participated in a Canada-wide project that looked at a new technique to automate the creation of content for e-learning systems. The project, which is now complete and took place over a two to three year time frame, also involved several universities and the New Brunswick Government, which set up a consortium for Atlantic Canada.
Mats Lindeberg, a spokesperson for Canarie, a non-profit funded by the government, denied any knowledge of CATA’s and Bown’s allegations in an interview with ITBusiness.ca Tuesday.
“We don’t know where this comes from,” said Lindeberg. “We don’t know who the original source is or if there’s any substance at all to this.”
Lindeberg went on to say that CRA has looked into assessing GST/HST on Canarie research projects in the past but that nothing came of it.
Following the CRA’s ruling, Idon East challenged the government and subsequently lost. But before that, Bown sent out e-mails to the other parties involved and discussed the issue with Canarie, which is why he finds it surprising that they’re denying that they have any knowledge of the situation.
He then went to CATA’s president, John Reid in the hopes of spreading awareness to other companies that might find themselves in a similar situation. Bown and Reid are worried what this could mean for the government’s investment in research and development, a key part of boosting Canada’s productivity.
“It’s not just important for our company,” he said. “It’s important for Canarie and for other bodies that are participating with other private sector companies.”
Under the Excise Tax Act, which was last updated in 1992, a transfer payment made in the public interest or for charitable purposes will not be subject to GST or HST. If, however, they’re a private corporation and they’re doing something as a contractor, they would likely be subject to taxation. The guidelines, however, are unclear and difficult for businesses to interpret, said Michael Matthews, firm director for Deloitte in Ottawa.
“There’s a high level of uncertainty and inconsistency as to how certain organizations that have received this funding are supposed to treat it,” said Matthews. “CRA has not really provided enough established guidelines that if a person knew they received this funding how they would treat it.”
Beyond this particular case, CATA’s Reid said many of its members and the high tech industry at large, probably aren’t aware of the potential GST/HST remittals. If a company that has received a grant fails to pay the tax, the CRA can enforce penalties and charge six per cent interest.
“We found out there isn’t a general awareness of this,” said Reid. “It is a cash issue for a number of companies.”