Personal and Income tax course type of question:

It is January 16, 2021.

You, CPA, work in the tax group of a public accounting firm. Jim Brown, the partner in charge of the Stephenson Software Support Limited (SSS) engagement, dropped into your office today. Jean King, the controller of SSS has emailed Jim with some questions in respect of the income tax treatment of expenditures for work they are having done on SSSs office premises as well as to ask some questions in respect of GST/HST.

Jim told you some basic background on the company.

SSS is a CCPC owned 100% by Diane Stephenson. SSS is located in Oakville, Ontario. SSS provides support services to the customers of a developer of custom computer software. SSS charges the customers a monthly fee for its services. For this fee, the customers can contact SSS with questions, assistance with operational problems, etc. Jim provided you with a copy of Jeans email which follows.

Hi Jim. I have some issues that I need done help on.

Issue 1:

We have just signed a contract to do some renovation/repair work on our premises in Oakville. As you will remember, SSS owns the building. The work we are having done is as follows in Expenditures list.

Issue 2:

In the past, all our billings have been to customers that operate only in Ontario so there have been no issues as to the rate of GST/HST we charge. However, the software developer is completing work for two of multijurisdictional businesses so we too will now have multijurisdictional customers! These customers have offices in various provinces and one even has offices in the US. For one of these customers, we will be billing each office separately for the monthly support fee. For the other, we will be billing head office for all offices monthly fee.

Expenditures list:

1. We were concerned about the ventilation in the building, especially in the current pandemic situation. Although some of our employees can work from home, not all work can be done remotely. We are therefore replacing the HVAC system with a much more modern system. This should result in much improved ventilation.

2. Our freeze and thaw winters have taken a toll on the steps and wheelchair ramp at our entrances. They need to be replaced for safety reasons. The current steps andcramp are made of concrete. They will be replaced with similar concrete steps and ramp.

3. We are also having the offices painted something we need to do every couple of years!

Jim would like you to provide answers to Jeans questions. He would like you to include an analysis as to how you arrived at your conclusions.

Please answer following 3 questions:

1. I am not sure which of these expenditures can be deducted for income tax purposes currently and which would have to be capitalized to the cost of the building. Your advice would be appreciated.

2. When do I claim the GST/HST input tax credits on these expenditures? Does it matter if they are currently deductible or have to be added to the cost of the building?

3. I am unclear as to what GST/HST rate we should be charging. Please let me know how to determine which rate to charge?

Thanks for your help!

Jean