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HomeMy WebLinkAboutTR-81-90 jf~potPr #~ TOWN OF NEWCASTLE REPORT Fi le # /J~jI1 7'/. Res. # By-Law # rill It{]: DATE: REPffiT #: SLJBJ:CT: Council October 15, 1990 TR-81-90 FILE #: GOODS AND SERVICES TAX IMPLEMENTATION PLAN RECOMMENDATIONS: It is respectfully recommended that Council approve the following: 1. That report TR-81-90 be received; 2. That the GST Implementation Plan be approved as outlined in body of this report; 3. That Staff be authorized to consult with Deloitte & Touche, Chartered Accountants with regard to the implementation of the GST for the Town; 4. That the required funds (estimated at $10,000 maximum) be provided for through the Working Funds Reserve (A/C #2900-1-X); and 5. That a copy of report TR-81-90, with a covering letter indicating the Town's concerns with regard to the excess burden imposed on Municipalities, be sent to the Minister of National Revenue. BACKGROUND & COMMENTS Bill C-62, the Federal Goods and Services Tax was passed by the House of Commons of April 10, 1990. The GST Legislation will take effect on January 1, 1991 once it has received Royal Assent by the Senate which is expected to be in the fall of 1990. Page 2 Appendix A (per attached) outlines an implementation plan schedule and timetable for the Town in preparing for the GST. Due to the complexities of Bill C-62 (GST) and the fact that the Government has not finalized many details which may have an impact on the Town, it is recommended that Deloitte & Touche Chartered Accountants be approved to provide Consulting and Assistance in the implementation of the GST. Deloitte & Touche have experts on staff who have indepth knowledge of the legislation and it's relevance to municipalities and have also had the experience of working with the area municipalities in this regard. Once the audit and legal requirements have been determined the ongoing monitoring, remitting and accounting control will be sufficient to warrant the creation of a new position. All departments will be affected by the GST Legislation. The need for Administrative/Accounting system procedural revisions by function will be required. However, the main thrust of burden will be felt in the Treasury - purchasing division as all supplies purchased will have to be scrutinized to ensure that either a tax credit or rebate is claimed. In addition to all contracts, existing and proposed requiring review and ,analyses for GST impact, it will be necessary to contact all suppliers to ensure the best possible price is obtained. This function requires the negotiating expertise of a buyer and as such a new position will be required at the implementation stage. There is a cost benefit to the municipality in negotiating with the supplier to ensure their charges are reflecting the lower GST that they are required to pay (as opposed to the existing 13.5% manufacturing FST). As there is no legislation currently in place, or anticipated, the onus is on the purchaser to pursue the opportunity of a reduced price. Considerable senior staff time is required to implement the GST by January 1, 1991. Other requirements with regard to staffing will be assessed during this implementation stage and will be carefully considered through the 1991 budget process. The additional position required to implement GST would ensure that the input tax credits andlor rebates are maximized. Such a position would be remunerated in the $25,000 to $30,000 range which could be accommodated in the 1990 budget. Council may wish to consider this position immediately due to the urgent time consequences related to the implementation of GST. In summary, the GST will have significant impact on the Town's operating expenditures compounded by the taxing delays related to the Government's passing of this Legislation (to date the Senate has not considered this matter). If the Town is to deal with the GST in a reasonable fashion, implementation must begin immediately. PaqeS Respectfully submitted, Recommended for presentation to the Committee ~ ari,,"A. Marano, Treasurer H.BSc. E. Kotseff inistrative Officer MAM/ges Attachment Appendix A GST IMPLEMENTATION PLAN GST IMPLEMENTATION PLAN SCHEDULE AND TIMETABLE Paqe 1 PHASE I - PROJECT INITIATION 3 PHASE II - INITIAL REVIEW OF ACCOUNTING/SYSTEM(S) PHASE III - ACCOUNTING/SYSTEM(S) CHANGES PHASE IV - GST IMPLEMENTATION 4 7 9 PRIME RESPONSIBILITY Page 1 TARGET DATE GST IMPLEMENTATION PLAN SCHEDULE PHASE I - INITIATION 1. Set Up Project Identify issues and define implementation taskslplan Treasury Project Statement and senior management commitment Project Manager and Project Team Establishment Review staffing and expenseslbudget impact for 1990/91 2. In depth study of legislation (Bill C-62 and Explanatory Notes) by the project team. . Attend specialized seminarslworkshops (e.g. M.F.O.A.) All Depts. 3. Register with Revenue Canada Treasury Sept.28/90 PHASE II - INITIAL REVIEW OF ACCOUNTINGI SYSTEM ( S) REQUIREMENTS 1. Review all sources of revenuelexpenditures All Depts. . Classify all items as one of the following ... exempt, zero rated or taxable. . Identify inputs associated with the supply of taxable, exempt and zero rated items 2. Administrative/Accounting System Procedure Revisions. All Depts. 3. Transition Requirements All Depts. Oct. 5/90 PHASE III - ACCOUNTING/SYSTEM(S) CHANGES 1. Define and design accounting and system procedural revisions to classify the GST component of inputs or purchases, i.e. exempt or taxable. Treasuryl Computer Systems Oct. 12/90 2. Design and develop tracking system to record GST separately and establish audit trail. Treasuryl Computer Systems Oct. 19/90 and Treasuryl Computer Systems Oct. 26/90 All Depts. Nov. 2/90 3. Prepare project plan to modify manual computerized systems. 4. Define new reporting requirements. 5. Revise accountinglsystem policies and procedures and educate all accountingl admin. staff. Treasury Nov. 9/90 Page 2 GST IMPLEMENTATION PLAN SCHEDULE (Cont'd) PRIME RESPONSIBILITY TARGET DATE PHASE IV - GST IMPLEMENTATION 1. Test, monitor and review GST accounting system(s) Treasury Nov. 23/90 2. Train all affected employees for policy or procedural changes. All Depts. Nov. 30/90 3. Implement GST System All Depts. Dec. 31/90 Page 3 PHASE I - INITIATION 1. Set Up proiect 1.1 Senior Management CommitmentlParticipation . Administration/Finance Committee - GST Steering Committee . Project Chairman: Treasurer 1.2 Formal GST Implementation Plan . Documented in writing with project statement, objectives and specific steps . Key personnel identified . Timetable specified 1.3 Composition of GST project Team . Coordinator - reporting to Project Chairman - contact person (inquiries) - dissemination of information - general direction . Corporateldivisional members - representatives from all depts. including: - accounting - computer systems - purchasing - external accountantslauditors 2 . EDUCATION PROGRAM . Indepth (GST Project Team) - initial meeting and department orientation - overall application - review Bill 62 and Explanatory Notes - Specific Reference to Schedules V and VI (Exempt and Zero Rated Supplies) - Review Regulations . General overview of GST to Department Heads and Committee(s) as required. Reqistration . Register Town with Revenue Canada Review registration requirements for outside agencies (e.g. Boards, Commissions, Community Associations etc) Page 4 PHASE II - INITIAL REVIEW OF ACCOUNTING/SYSTEM(S) 1. Review all Sources of Revenue and ExPenditures and Classify 1.1 Classify accounts as taxable, non-taxable (exempt and zero rated services. Code lists of accounts by referencing the exempt sections per Schedule V of Bill 62. Outline any details of accounts which include more than one type of revenue. For example, a sundry revenue account may include user fees for inspections, permits, etc. Research existing collection procedures for taxable services and determine if system changes to collect and record are required. If uncertain of classification, request rulings from Revenue Canada. 1.2 Identify Purchases associated with Taxable, Exempt and Zero Rated Items Identify the applicable expenditureslpurchases which are related to the appropriate revenue. Cross reference the applicable expenditures to the taxable revenues. For example, an expenditure is eligible for input tax credits assuming it is related to a taxable supply. Complete the departmental chart of accounts per above instruction and forward to TreasurylFinance Department. 2. Administrative/Accountinq System Procedural Revisions 2.1 Administrative/Accounting Procedures Review Review accounts payable, accounts receivable, purchasing and related sub-systems. Review and establish cut-off procedures related to billing, purchasing, payables, quotations etc. Review payments received or receivable under instalment contracts and procedures regarding holdbacks, deposits, letters of credit etc. Review prepayments for services to be received after 1990. Establish procedures to track all unprocessed invoices at the end of each month to ensure receipt of GST input tax credit on a timely basis. Research existing collection procedures including cashiers operations and determine if new equipment required. Consider the impact of GST in future contract negotiations (e.g. contracting out). As a result of the change of use rules related to capital goods and real property, it is prudent to set up detailed sub-ledgers to track assets. Review the impact of, and the accounting for GST on employee benefits (i.e. cars, membership dues, professional dues etc) Review the impact of GST on existing and contemplated car leases. Page 5 PHASE II - INITIAL REVIEW OF ACCOUNTING SYSTEM(S) (Cont'd) 2.2 System Procedural Reviews Become familiar with all areas to be examined by the GST Task Force, with particular attention paid to the accounting related areas. Review existing systems software specifications with regard to sales tax capabilities. Review and where necessary identify requirements for new computer-related forms. Educate Computer systems personnel on GST. 3. Transition Requirements 3.1 Contract andlor Agreement Accounts Specifically highlight contract andlor agreement accounts to ensure review of potential outstanding contracts andlor agreements at year end for transition purposes. Establish procedures to maximize FST rebate (or minimize unrecovered FST) as at December 31, 1990. All contracts should contain the following provisions to ensure entitlement to any FST savings on post December 31, 1990 deliveries: A price adjustment clause to reflect changes in the existing FST rates or imposition of entirely new taxes (other than GST). A price adjustment clause equal to the FST rebate as well as price reductions resulting from the removal of FST. A statement that the contract price, after the above adjustments, will be exclusive of GST, which is the owner's responsibility. The following sample paragraphs should be added to existing and future contracts prior to implementation of GST. The Federal Sales Tax shall be calculated for the entire project and included in the Contract. In the event that Federal Sales Tax (FST) no longer applies to the project, each application for payment, made after the effective day of such a change, shall include the appropriate credit for such Federal Sales Tax not expended. The proposed Goods and Services Tax (GST) announced in the Federal Budget on April 27, 1989 is not to be considered an applicable tax for the purposes of this Contract. The Contractor shall therefore not include any amount in the Contract for the said GST. In the event the GST does apply, the Contractor shall indicate on each application for payment as a separate amount the appropriate GST the Owner is legally obliged to pay Page 6 PHASE II - INITIAL REVIEW OF ACCOUNTING SYSTEM(S) (Cont'd) 3.1 Contract andlor Agreement Accounts (Cont'd) This amount shall be paid to the Contractor in addition to the amount certified for payment under the Contract and will therefore not affect the Contract Price. Review payments for rents, royalties and other similar payments that are made or fall due after August 1990 and before 1991 that relate to a period after 1990. Review existing automobile and capital equipment leases to determine whether eligible for the "Grandfather" Clause. 3.2 Purchasing Transition Cut-offs and Contracts Review purchasing strategies (i.e. whether to purchase prior to 1991 or after 1990) with a view to minimizing tax cost. Establish which existing supply contracts will extend beyond January 1, 1991 and re-negotiate FST excluded prices. For all existing contracts calling for taxable goodslservice to be deliveredlperformed after 1990, ensure that suppliers provide their registration numbers. Review any sales contract extending beyond December 31, 1990 for FST content/GST implications. Review work in process to ensure all work performed in 1990 is billed before May 1991. Where possible bill December 1990 to avoid proration on invoices over the new year. Page 7 PHASE III - ACCOUNTING SYSTEM(S) CHANGES 1. Define and Design Accountinq & System Revisions Establish procedures to reconcile, on a monthly basis, the GST general ledger account balance to appropriate documentation/reports. Based on revenue study identify changes required to existing forms (i.e invoice, purchase orders, expense reports etc.) to reflect tax collection and other legislated requirements. Review modifications required to purchasing related procedures. Consider whether GST input tax credit is to be computer generated or calculated manually. For inventoried purchases, ensure segregation of GST for input tax creditlrebate purposes. Ensure that accounts payable system shows the amount of GST paid and classifies said amount to the GST general ledger account. Review the accounting report listings for changes related to GST payments, vendor GST registrations etc. Review modifications required to sales-related accounts. Ensure that automated invoices show registration numbers and consider a GST status flag to identify taxablelexemptlzero rated classification. Review and make appropriate system modifications to recognize timing of GST liability on taxable sales. Update supplier files to include GST registration numbers. Establish procedureslcheck list to assist accounts payable staff to distinguish between (GST) eligible/non-eligible travel and business expenses. 2. Design and Develop Tracking System to Properly Record GST and Establish Audit Trail Existing system should be flexible to handle more than one level of taxes and different bases. Develop systems to capture tax at the purchasing andlor payables stage. Establish procedures to track input tax credits (GST) paid and GST billings/collections. Establish procedures to track "non-refundable" GST. Review and establish optimum method to track, record and report GST paid on employee-related expenditures. Establish invoice policy to be a GST-excluded basis (GST identified separately on invoices) in order to track GST and the applicable changes required in the accounts payable system. Determine the quantity of supply of forms on hand and estimate requirements to December 31, 1990 to ensure minimum inventory levels. Review wording of tax clauses on purchase order forms and revise where necessary. Page 8 PHASE III - ACCOUNTING SYSTEM(S) CHANGES (Cont'd) 2. Design and Develop Tracking System to Properly Record GST and Establish Audit Trail (Cont'd) Ensure that all new forms (purchase orders, invoices etc.) will be on hand at December 1990. Determine how tax on purchases and rebates will be allocated to expenditure accounts - subsidy implications considered. Ensure system can handle bad debts, discounts, returnable containers etc. where applicable. 3. Prepare proiect Plan to Modify Manual and Computerized Systems TreasurylFinance Department coordinates plan and procedures to design, test and implement new/revised softwarelprograms for accounting systems. 4. Define New Reporting Requirements Define, design and implement new reporting for rebates, liabilities, invoices, purchase orders etc. Design report(s) listing all GST paidlbilled, including details of the vendor GST registration number, date of invoice, audit number, vendor name and address. 5. Revise Accounting/System Policies and Procedures and Educate all Accounting/Administrative Staff Determine payment policy on supplier invoices with no GST registration number shown. Design procedures for audit compliance and maximization of GST input tax credits. Design detailed purchaseslcheck lists on GST to assist buyers. Educate staff on use of new forms, particularly expense reports. Page 9 PHASE IV - GST IMPLEMENTATION 1 . Test , Monitor and Review GST Accounting System ( s ) Ensure any regulatory revisions from Revenue Canada have been incorporated into final system. Perform necessary systems testing to ensure integrity of GST tracking mechanism. Review impact of conversion to GST on 1990 budget and 1991 forecasts including consulting fees andlor new staff requirements. Forward questions and outstanding interpretation clarifications to MFOA andlor Revenue Canada. 2. Train Employees Affected by Policy/Procedural Changes Set up training sessions and issue directives to all departments for employees not involved with conversion and implementation. Set up meetings with major suppliers prior to December 31, 1990 and educate them on GST and revised policieslprocedures 3 . Implement GST Post - Implementation review. Monitor and review regulatory updates of GST relative to municipalities.