Tax Articles
Getting Ready for the HST
Al White
April 2010
While summer may seem a long way away, businesses should be planning for July 1 when sales taxes will be harmonized with the federal goods and services tax (GST). Ontario and BC will join Nova Scotia, New Brunswick and Newfoundland & Labrador, which have already implemented harmonized sales tax systems.
Generally speaking, businesses that supply taxable goods or services that are to be delivered or performed on or after July 1, 2010 and are paid or become payable on or after May 1, 2010 will be subject to the HST. Ontario enterprises currently pay 8% provincial sales tax that they cannot recover as they do with the GST. With the new 13% harmonized sales tax however, input tax credits (ITCs) will recover the provincial component of the tax, resulting in lower costs. Compliance cost should ease for most businesses. Businesses will only be required to file one sales tax return with the Canada Revenue Agency (CRA), will only be audited by one level of government and will no longer require purchase exemption certificates. As well, businesses with sales below $30,000 may not be required to register for or to collect the HST.
At the same time, there will be new demands for certain businesses, particularly those that sell goods and services that were not previously subject to provincial sales tax but will now be subject to the harmonized sales tax.
Here are a number of steps you can take now to prepare your business for the imminent transition:
- Budgeting: Assess the impact of the HST, including implementation costs, on cash flow projections, budgets, costs and pricing. Larger organizations will have to take into account the restrictions on claiming ITCs on certain expenditures during the first eight years of harmonization.
- Systems conversion: Determine changes required to accounting and point-of-sale systems so that you can charge, collect and remit HST as well as report input tax credits. Invoices, sales receipts, purchase orders and expense reports will likely require modification.
Contracts: Assess the impact on any current and potential contractual obligations (i.e. leases, credit notes and discount coupons).
- Timing of expenditures: Review planned expenditures and determine whether they are subject to PST that can’t be recovered. After June 2010, the provincial component of the HST paid may qualify for an ITC.
- Inter-provincial sales and purchases: If your business sells or purchases in other provinces, assess the tax impact related to inter-provincial sales and central purchasing.
Ultimately, harmonization is intended to generate tax savings, lower production costs, and reduce compliance and paperwork for most businesses in Ontario. By preparing now for the transition, you can start to realize those gains sooner rather than later.
Al White, CA, is a partner at BDO’s Wiarton location.
