Harmonized Sales Tax – getting ready for the HST
John Hunt , CA,
The Milk Producer
July 2009
In March the Ontario government introduced their budget for the coming year. Included in the package was the introduction of the Harmonized Sales Tax (HST) to replace the current Provincial Sales Tax (PST). The new HST will be effective July 1, 2010.
The new HST will operate essentially the same as the federal GST does now. The combined rate will be 13% (5% as the federal component, and 8% as the Ontario component). Most HST amounts paid will be claimed back as an input tax credit, just as the GST currently is.
Ontario will be joining some of the Maritime provinces that have operated under the harmonized HST for over 10 years now. Quebec has a variation of the HST, and British Columbia has just announced that it will also be moving to the HST at the same time as Ontario. The Canada Revenue Agency (CRA) will administer the HST 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 all of the HST tax will be recoverable by them now whereas some of the PST they previously paid could not be recovered. There will also 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 a little different than for other businesses, mainly because farm operations had significant advantages over other businesses from the previous PST system. The main concern of many farmers concerns cash-flow. Most likely all expenses that farm operations presently pay where there is a 5% GST rate applied will now have a 13% HST tax rate applied. Obviously this will result in a large increase in the amount of taxes paid by the farmer. As noted above, these amounts may be claimed back but the farmer will have to carry the amount until the refund is received. As a result of this, farmers will want to consider the amount of working capital that they may have tied up in HST until it is returned to them after filing an HST return, and may want to consider more frequent filing of their returns in order to get HST refunds sooner. For example, if you are currently filing your GST returns annually, you may want to change that to quarterly or even monthly filing to minimize the cash-flow impact on your budget. Note that if you want to change your filing frequency for GST/HST returns, you have to request that change by filing a form with CRA. The change becomes effective on the 1st day of the next fiscal year of the business, so if your year-end is December 31 and you want to make a change to this for 2010 you will need to file the form in 2009.
A more favourable implication of the HST is with respect to farm vehicles such as a pickup truck 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 of next year, HST will apply to the purchase of these vehicles, but the HST amount will be refundable for most farm operations if the vehicle is used for business purposes.
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.
Farmers are also consumers, and so all of the things that have been talked about in the press such as haircuts, legal and accounting fees, home repairs, etc. will now be subject to the HST rate rather than just the previous GST rate.
Finally, there is an implication with respect to your record-keeping. Before July 2010 you will want to ensure that any software you use for bookkeeping on your farm operation is up to date and capable of handling the new HST so that you capture all HST amounts that you are entitled to recover when filing HST returns after July 2010, and so that you charge the new rate when billing for services or goods that are taxable.
As with any change, the new HST will require some advance planning so that your operation is prepared for the implications of the HST, and is ready to account for HST in the farm’s records.
Note: The HST details noted above are based upon information provided by Ontario to July 31 2009. There will be additional details provided over the coming year that will have to be reviewed for possible further implications or possibly changes to what has been released.
