Twenty-One - 7

(Regular And Quick Method GST Returns)

Johnny Dangerous has successfully engaged in criminal activity since he was 12 years old. Financially, he has been very successful and, to date, he has no criminal record. All of his activity is carried out in Ontario. The HST rate for Ontario is 13 percent. The Ontario Quick Method rates are 4.4 percent for businesses that purchase goods for resale and 8.8 percent for service providers.

Early in his career, his father taught him that the notorious Chicago gangster Al Capone was sent to jail not for his many murders and other illegal acts, but for tax evasion. Taking this lesson to heart, Johnny has been very diligent about filing both income tax returns and GST returns on time. For the 2020 taxation year, his activities fall into three categories:

Contract Assassinations Johnny accepts contracts for assassinations at a base rate of $15,000. He offers volume discounts and charges higher fees for particularly difficult cases. As he enjoys the work, Johnny handles all of this activity personally.

During 2020, his revenues from this work totaled $323,000. While he does not specifically advise his clients that they are paying HST, he files his GST return on the basis that the amounts collected are HST included.

Export Of Illegal Drugs A growing part of Johnny’s activities involve exporting heroin and other illegal drugs to the U.S. market. His 2020 revenues from this activity totaled

$113,000.

Loan Sharking As a service to his clients, he offers extremely high interest rate loans to individuals who cannot find other sources of financing. Revenue from this source totaled $87,000 for 2020.

Johnny has an assistant, Cruella Ratched, who works on a full time basis for his business. Since he lost his driver’s licence two years ago, her duties include driving him to his jobs using her car.
Her salary for 2020 is $85,000, which includes a $12,000 car allowance.
Johnny maintains an office that he rents for $4,000 per month, plus HST. During the year, miscellaneous office costs total $6,900 plus applicable HST. This includes $400 for business insurance.
The furniture, fixtures, and art in the office are leased at a cost of $2,000 per month, plus HST.
Telephone and internet cost $125 per month, plus HST.
Johnny has calculated that these costs should be allocated to his three business activities as follows:
Contract Assassinations 65%
Export Of Illegal Drugs 20%
Loan Sharking 15%
Expenditures specific to his various activities are as follows:
Contract Assassinations Johnny uses a Glock 9mm for this activity. He disposes of each gun after a single use, making this a significant cost of doing business. On January 1, 2020, he had five of these guns on hand. Their total capital cost was $3,101, plus HST, and they had been allocated to class 8. They were the only assets in this class and on January 1, 2020, the UCC for this class was $2,792. During 2020, Johnny acquires an additional 19 guns at $549 each, plus HST. After using each weapon once, he disposes of 20 of his guns. There were no proceeds associated with the disposals.
His only other costs associated with this activity were for travel. Airline, hotel, and taxis totaled $12,000 plus HST. Meals while travelling totaled $7,492 plus HST.
Export Of Illegal Drugs Costs associated with this activity are as follows:
Purchases Of Processing Equipment (Including HST) $11,300 Security Service For Lab (Including HST) 5,650 Shipping Costs (No HST - Using Illegal Immigrants) 3,000 Bribes To Customs Officials (No HST) 4,500 Cost Of Materials Exported (No HST) 21,700 Loan Sharking Johnny used bank loans to finance these loans. Interest on these loans for 2020 was $12,600. When he experienced difficulties with collections he used a former World Wrestling Entertainment champion to enforce the payment of the loans.
Costs for this service for 2020 were $4,800 (no HST - small supplier).
Required:
A. Determine Johnny’s HST payable (refund) for the year ending December 31, 2020, using the regular method of determination.
B. Determine whether Johnny can use the Quick Method for determining his HST payment or refund for 2020.
C. Without regard to your conclusion in Part B, determine Johnny’s HST payable (refund) for the year ending December 31, 2020, using the Quick Method.