Harmonized Sales Tax What will it mean to your Business? May 28, 2009 Bob Wilkinson, C.G.A. BDO Dunwoody LLP

Harmonized Sales Tax

What will it mean to your Business?

May 28, 2009

Bob Wilkinson, C.G.A.

BDO Dunwoody LLP


• March 26, 2009 Ontario Government announced it will harmonize PST with GST on July 1, 2010

• Businesses pay PST on business inputs without ability to recover PST

• Under Harmonized sales tax system, input tax credits will be available which will ensure PST not a hidden cost


• Reduction of paper work for businesses now collecting PST and GST

• Single tax charged and paid to CRA

• One combined sales tax return

• Will no longer be two levels of government audits.

• Finance Minister Dwight Duncan comments:

• Harmonization fiscally neutral overall

• Additional sales tax revenue will help fund significant corporate tax reduction package


• Ontario joining Nova Scotia, New Brunswick, Newfoundland Labrador

• Ontario’s share collected by CRA

• Combined rate 13% (5% federal, 8% Ontario)

• Small supplier threshold continue at $30,000

Harmonized Sales Tax• July 1, 2010 conversion

implementation• Convert accounting systems,

cash registers to collect harmonized tax

• Expenses may need to be segregated between pre and post implementation amounts for proper tracking

• Review filing period (monthly quarterly, annually)

• Planning of significant expenditures as conversion date approaches for businesses

• Recovery of PST after June 30, 2010

• Computer hardware/software, equipment, vehicles

• Consumers – expenses subject to provincial component consider acquiring before June 30, 2010 (real estate acquisitions)


• Businesses review contractual obligations to determine impact

• Impact of harmonization in negotiating contracts that extend beyond July 1, 2010

• Review transitional rules when issued

Harmonized Sales Tax• Compliance costs, credit

available

• $300 – $1,000

• Allowed in first reporting period after harmonization

• Annual taxable revenue under $2,000,000

Total taxable revenues in first full fiscal quarter commencing after June 30, 2010

Amount of transitions credit

Up to and including $15,000

Over $15,000 and up to including $50,000

Over $50,000 and up to and including$500,000

$300

2% of Taxable revenue for that quarter

$1,000

Harmonized Sales Tax• Recovery of ITC’s• Restrictions as follows: • First 5 years • Financial institutions,

businesses with TAXABLE sales over $10,000,000 annually

• After first 5 years, phased in over next 3 years

• ITC restrictions related to: • Energy (except for energy used

for farming or for production of goods for sale)

• Telecommunications services other than internet access or toll free numbers

• Road vehicles less than 3000 kilograms and related fuel, parts and certain services

• Food, beverages and entertainment

Harmonized Sales Tax• Consumer Relief

• Transition benefits for eligible individuals and families

• Up to $300 for individuals

• Up to $1,000 for single parents and couples

• Payable in three instalments

• Reduced by 5% of a recipient's prior years adjusted net income over $80,000 for individuals and $160,000 for families

Harmonized Sales Tax• Additional information on

technical design issues and transitional rules to be released in the coming months

• Ontario government to establish implementation panel to assist with transition to single sales tax

Harmonized Sales TaxMUSH Sector

• Municipalities, Universities, Colleges, School Boards, Hospitals, Charities, Qualifying Non-Profit Organizations

• Benefits / potential costs?

• Each entity should review carefully implications of HST in upcoming budgets

• Public service bodies presently recover GST as a percentage of GST paid

• Public service bodies will also be able to claim rebates on provincial portion

• Entities in the MUSH sector will need to track federal portion and provincial portion separately to calculate rebates

Harmonized Sales TaxSector Rebate Table

Provincial Federal Municipalities

Universities/Colleges

School Boards

Hospitals

Charities, Qualifying Non-Profit Organizations

78%

78%

93%

87%

82%

100%

67%

68%

83%

50%

Harmonized Sales TaxAgriculture Sector• Currently: • Paying GST at 5% on certain

goods/services• Certain purchases zero rated • PST – Point of Sale relief on

certain purchases

• HST:• Will pay at 13% on certain

goods/services • Zero rated purchases will

continue • PST component – Point of Sale

relief?

• Consider: • Cash flow issues • Filing period

Harmonized Sales TaxRents• Commercial: • Currently charge / pay GST at

5%

• HST: • Will charge HST at 13% • Will pay HST at 13%• May recover HST if registered

• Consider: • Status of tenants• Registration

Harmonized Sales TaxService Entities• Auctioneers• Accountants• Bookkeeping Services • Lawyers• Real Estate Agents • Hair Stylists• Janitorial / Cleaning Services• Lawn Maintenance Services • Consulting Services• Trades• Funeral Services• Car Washes• Photographers• Campground Operators (site

rental)

• Currently:• Charge/pay GST at 5%• Pay PST on certain expenditures

at 8%• No PST charges• Recover GST at 5%

• HST• Will charge/pay HST at 13%• Will recover HST at 13%

• Consider• HST status of recipient of

services (registrant/non-registrant

• Deferring equipment purchases• HST reporting period

Harmonized Sales TaxRetail Entities• Currently: • Charge/pay GST at 5%• Charge PST at 8%• May pay PST on certain

expenditures at 8%• Recover GST at 5%

• HST:• Will charge/pay HST at 13%• Will recover HST at 13%• PST component – Point of Sale

Relief?

• Consider:

• Cash Flow

• Deferring equipment purchases

• HST reporting period


Exempt Activity Entities

• Insurance Companies

• Insurance Agents/Brokers

• Insurance Adjusters

• Financial Services

• Health Care Services – Optometrists

– Chiropractors

– Physiotherapists

– Dentists

– Doctors

• Childcare

• Currently:• Not charging GST or PST on

services• Paying GST and PST • Not recovering GST or PST

being paid

• HST• Will not charge HST at 13%• Will pay HST at 13% • Will not recover HST being

paid at 13%

• Consider: • Review costs• Prepare/review budgets


Trades• Currently:• Charge/pay GST at 5%• May pay PST on certain

expenditures• May self assess PST on certain

expenditures

• HST• Will charge HST at 13%• Will pay HST at 13%• Will recover HST at 13%• No PST self-assessment

required• PST Component – Point of Sale

Relief?

• Consider:• Cash Flow • Deferring equipment purchases• HST reporting period


Manufacturing/Processing Entities

• Currently: • Charge/pay GST at 5%• May pay PST on certain

expenditures at 8%• May self-assess PST on certain

expenditures• Pass on PST costs to consumer• Recover GST at 5%

• HST:• Will charge HST at 13%• Will pay HST at 13% • Will recover HST at 13% • No PST self-assessment

required• PST component – Point of Sale

Relief?

• Consider: • Cash Flow• Deferring equipment purchases• HST reporting period


Real Property

• Sale of real property currently subject to GST but not PST

• Builders currently pay unrecoverable PST on building materials and supplies and pass through to consumers

• Under HST builders will have ability to recover provincial components on materials and supplies

• Under HST sale of new homes will be subject to an additional 8% tax

• Ontario has proposed a rebate of 75% of the province’s portion of HST (6%) for new homes sold under $400,000

• Rebate reduced incrementally after $400,000 and over $500,000 no rebate will apply


• GST new housing rebate will continue to be in place for the federal portion of HST (36% of GST paid for new homes sold under $350,000, rebate reduced incrementally after $350,000 and over $450,000 no rebate applies)

• Considerations:

• For builders who sell new residential properties inclusive of GST or HST and provide for assignment of rebates to the builders, it is important to review agreements if title and possession transfer after July 1, 2010 to ensure that HST has been accounted for properly in the purchase price.

• Transitional rules have not been specified (transactions that straddle July 1, 2010 implementation of HST)


Other Matters• Retention of a retail sales tax on private transfers of used motor vehicles

to prevent inequities• An 8% levy or tax on certain types of insurance premiums, which are

currently subject to PST but would be exempt under HST• An adjustment to other levies that currently apply to alcohol products to

compensate for decreased provincial tax rate under HST (alcohol presently subject to retail sales tax at 10% / 12%)

• Direction of additional net revenue resulting from an increase in provincial tax rate on transient accommodation (currently 5%) towards the promotion of destination marketing and tourism initiatives

• Point-of-sale relief for provincial component of HST on the following items:

• Books• Children’s clothing and footwear• Children’s car seats/booster seats• Diapers• Feminine hygiene products

QUESTIONS?

Documents

Harmonized Sales Tax What will it mean to your Business? May 28, 2009 Bob Wilkinson, C.G.A. BDO Dunwoody LLP