Tax Articles
Preparing for the HST – Public Service Bodies
Laura McGuckin
May 14, 2010
Preparing for the HST – Public Service Bodies
This memo will help public service bodies (PSBs) prepare for the Harmonized Sales Tax (HST) in Ontario that comes into effect on July 1, 2010. PSBs include charities, municipalities, universities, public colleges, school authorities, hospital authorities and non-profit organizations.
What is the HST and when will it apply?
The HST for Ontario will be 13%, which consists of a federal portion of 5% and a provincial portion of 8%. There will be no segregation of the federal and provincial portion on invoices – the combined 13% will be reported as a single sales tax. In general, the HST will apply to taxable supplies of property and services made in Ontario for which consideration becomes due on or after July 1, 2010.
Charging HST
Generally, the HST applies to the same goods and services as the GST applies to, except for goods that qualify for Ontario’s point of sale rebates. PSBs that are HST registrants may be eligible to claim input tax credits (ITCs) for the HST paid on inputs into making taxable supplies. Taxable supplies are supplies made in the course of a commercial activity and include zero-rated supplies.
Registration
The Canada Revenue Agency (CRA) requires PSBs that make taxable supplies of property and services in Canada to register for the HST. PSBs that are already registered for the GST will not be required to reregister for the HST. As under the GST, PSBs will not have to register if they qualify as “small suppliers”. A PSB qualifies as a small supplier for GST/HST purposes if it has total revenue from taxable supplies under $50,000 in a calendar year. Total revenues from taxable supplies include zero-rated supplies.
Rebates
PSBs will be eligible to claim rebates for the federal and provincial components of the HST paid on most inputs used to provide exempt supplies. Any inputs used to provide taxable supplies are eligible for 100% recovery as an ITC. A PSB does not have to be an HST registrant to claim the PSB rebates. The rebate rates are:
| PSB Type |
Federal |
Ontario |
Municipalities |
100 % |
78% |
Universities and Public Colleges |
67% |
78% |
School Authorities |
68% |
93% |
Hospitals (other than the operation of a public hospital) and Hospital Authorities |
83% |
87% |
Charities and Qualifying Non-Profit Organizations |
50% |
82% |
The federal and provincial portion of the rebates will be reported separately on the HST rebate form but will be paid to the PSBs by one cheque from the government.
Example:
A qualifying non-profit organization pays $1,000 in HST during the reporting period. They only provide exempt supplies. They may claim the following rebates:
Federal
$1,000 x 5/13 x 50% |
Rebate
$ 192.30 |
Ontario Rebate
$1,000 x 8/13 x 82% |
$ 504.61 |
| Total Rebate |
$ 696.91 |
Recordkeeping
In order to ensure you are maximizing your rebate claims, your accounting system will need to appropriately track the HST paid that is eligible for the rebate. Further complicating matters is that while the total HST paid will be shown as a single number on invoices, PSBs are required to report the federal and provincial component of the rebate separately.
For example, a qualifying non-profit organization in the past would expense 50% of the GST paid and the remainder would go to a GST Receivable account to be reported on the rebate application. After July 1st, 69% of the total HST will go to the HST Receivable account with the remaining 31% expensed. When it comes time to prepare the rebate application, the federal and provincial portion will have to be identified from the 69% that was set up as recoverable. 28% of the amount recorded as HST recoverable will be the federal component and 72% will be the provincial component. The appropriate percentages will vary based on the type of PSB.
Care should also be taken when recording transactions that occur around the July 1st cut-off date to ensure the appropriate rebate percentage is applied. Some invoices received after July 1st may only contain GST and only the federal portion of the rebate may be claimed on those invoices. You may wish to set up a new account to track the HST paid to avoid any confusion during the transition.
If you would like assistance setting up your accounting system to track the recoverable portion of HST, please contact your BDO advisor.
Sources and Additional Resources
For more information, please see the following:
