Harmonized Sales Tax – Getting ready for the HST
John Hunt , CA,
Better Farming
November 2009
In March 2009, the Ontario government introduced its budget for 2009. Included in the package was the introduction of the Harmonized Sales Tax (HST) to replace the current Provincial Sales Tax (PST) and federal GST, effective July 1, 2010.
The combined rate will be 13% (5% federal and 8% Ontario) with most of the paid amounts being claimed back as an input tax credit, just as the GST currently works.
Ontario will be joining some of the Maritime provinces that have operated under the HST for over ten years, while Quebec has a variation of this tax. British Columbia announced that it will also be moving to the HST at the same time as Ontario. The Canada Revenue Agency (CRA) will administer the tax for Ontario; registrants including farm operations will only file one return that includes the federal and Ontario components.
For businesses that have had to file Ontario sales tax returns, the new HST will significantly simplify their monthly reporting of sales and remitting of taxes. It will also result in reduced costs since the HST will be recoverable now, whereas some of the PST they previously paid was not. Furthermore, there will be a credit of between $300 and $1,000 allowed to small businesses, including farm operations, on the first HST return filed after next July.
Implications for farm operations
The implications for farm operations are slightly different than for other businesses, mainly because they had significant advantages over other businesses from the previous PST system. The main concern of many farmers is cash-flow. It is most likely that all farm operation expenses to which a 5% GST rate is applied will now have a 13% HST tax rate applied. Obviously, this will result in a large increase in the taxes owed by farmers, who will have to carry the amount until any refund is received. As a result, farmers will want to consider the amount of working capital that they may have tied up in HST, and possibly file their returns more frequently to receive HST refunds sooner. For example, if you are currently filing your GST returns annually, you may want to start filing them quarterly or even monthly instead in order to minimize the cash-flow impact on your budget. However, if you want to change your filing frequency for GST/HST returns, you have to make this request by filing a form with CRA. The change becomes effective on the first day of the next fiscal year of the business.
A more favourable implication of the HST is with respect to farm vehicles such as pickup trucks or larger licensed highway tractors and trailers. Currently, PST applies to the purchase of these vehicles, and is not refundable to the farm operation. After June 2010, however, HST will apply to the purchase of these vehicles, but will be refundable for most farm operations if the vehicle is used for business purposes. Note that if amounts were paid or became payable after October 14, 2009 for taxable goods or services to be provided on or after July 1, 2010, you may have to self-assess the HST on these amounts. However, an offsetting input credit will be allowed, so there will be no cash flow impact.
If you charge for custom work or rent out land, keep in mind that these charges will be subject to the 13% HST rate after next June, rather than the current 5% rate when you are invoicing your customer or tenant. Note that HST will have to be collected on amounts that are paid or become payable on or after May 1, 2010, for goods or services to be provided on or after July 1, 2010.
As farmers are also consumers, many other aspects discussed in the press, such as haircuts and home repairs that will be subject to HST in place of just GST, are also applicable to them.
Finally, with respect to record-keeping, you will want to ensure that any software you use for bookkeeping on your farm operation (before July 2010) is up to date and will deal with the new HST. This will ensure that you capture all of the HST amounts you are entitled to recover when filing HST returns after June 2010, and that you charge the new rate when billing for taxable goods or services.
As with any change, the new HST will require some advance planning so that your operation is prepared for its implications and to account for it in the farm’s records.
Note: The HST details noted above are based on information provided by the province of Ontario to November 18, 2009. More changes may be announced as the implementation date draws closer.
