How Will HST Impact Your Business?

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Damon Newton
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1 How Will HST Impact Your Business? Presented By: Sonia Vaknin, B.A., LL.B Tax Partner Date: June Airport Road, Mississauga ON, L4V 1W1 Tel: (905) Fax: (905)

2 Table of Contents HST Checklist... 3 Electronic Reporting Requirements for HST Summary Chart Our Team P a g e H S & P A R T N E R S L L P

3 HST Checklist INTRODUCTION This checklist is designed to provide you with general guidance on the transition to HST. It considers important modifications which may be required to accounting systems and other relevant matters. VENDORS 1. Have you received payment for goods or services to be provided in whole or in part after June 30, 2010? (Ignore, if 90% or more will be supplied before July 1). This will establish if supplies to which HST would apply have been prepaid. If the answer is no, you can skip questions 2, 3 and If #1 answer is yes, was payment received or invoiced before October 14, 2009? If yes, and the supply is taxable, only GST is payable by customer (i.e. no HST). 3. If the answer in #1 is yes, was the payment received or invoiced between October 14, 2009 and May 1, 2010? If yes, supplier is not required nor authorized to collect HST; only GST. (However, certain purchasers may be required to report and pay the 8% Ontario portion of the HST where goods or services are received after June 30, 2010). 4. Has a payment for goods or services to be supplied in whole or in part after June 30 th been invoiced or received between May 1 and June 30, 2010? If yes, the vendor must charge HST on all taxable supplies of goods and services, for the part of the goods or services that will be received after June 30, Do you make supplies that allow a point of sale (POS) rebate for HST? These include children s clothing and boots (not adult sizes even if purchased for children), car seats and booster seats, diapers and 3 P a g e H S & P A R T N E R S L L P

4 feminine hygiene products, books and audio books, printed newspapers and prepared food and beverages sold for $4.00 or less in a single sale. Vendor s invoices, cash register and accounting system must be able to report items that have a rebate and those that do not on the same document. Rebated items can be shown at 13% HST with a reduction of 8% for the Ontario rebate, or can be shown as having net HST of 5%. (Rebates must be tracked for reporting). 6. Did you allow return of purchases or reduce the price at a later date? If yes, ensure that PST, GST or HST paid on original purchase will be recovered. The following questions relate to supplies of goods or services received before July 1, 2010 where payment is received and invoiced after June 30, Did you supply taxable services in Ontario that were substantially completed (i.e. 90% or more) before July 1, 2010? If yes, GST will apply but not HST. (Where services are supplied in Ontario and less than 10% are completed by June 30, 2010, HST will apply to the full fee.) 8. Were taxable services supplied in Ontario with more than 10% being completed before and after July 1, 2010? If yes, the fee must be prorated proportionately with GST charged on the services completed before July 1, 2010 and HST charged on the remainder. 9. Did you supply taxable goods (tangible personal property) with ownership and/or possession passing to the customer in Ontario before July 1, 2010? If yes, GST will apply to the supply and possibly PST. If no, only HST will apply. 10. Will you receive payments for services that straddle July 1, 2010? If yes, ensure that pre July 1 amounts have GST charged and all others have HST. 11. Have you paid for subscriptions or memberships that straddle July 1, 2010? If yes, ensure that taxable supplies are charged only GST for pre July 2010 periods and HST for those after June 30, (Lifetime memberships have special rules.) 4 P a g e H S & P A R T N E R S L L P

5 12. Do you receive taxable rents/leases (commercial and short term lodging)? If yes, ensure that rental periods after June 30, 2010 have HST charged. Address whether lease agreements need to be amended to account for increased rate of tax. (Monthly payments may be a factor of principal, financing cost and tax. With increased tax, the principal allocation will decrease if payment is not increased.) Rental deposits are not taxable until applied, but often include the tax amount in case they have to use it. Agreements going forward (and renewals) should include the 13% HST amount where they may have had only 5% included for the GST. PURCHASERS 13. Have payments been made between October 14, 2009 and April 30, 2010 in relation to goods or services to be received after June 30, 2010 on which HST would be payable? (Not: The supplier is not authorized to collect HST on these supplies). If yes, you may have to report the 8% part of Ontario HST on your GST /HST return that includes July 1, 2010 or if not registered, on a special return. This will apply to you if you cannot recover all the HST paid by claiming 100% input tax credits (ITCs), such as financial institutions, public service bodies, others making exempt supplies of goods or services (i.e. residential landlords) and large vendors who are required to repay certain ITCs for specified expenses (energy, telecommunications, small vehicles and food and entertainment). These parties will still be able to recover part of the tax reported through allowable rebates or partial ITCs (in relation to their commercial activity). 14. Have payments been made between May 1 and June 30, 2010 for taxable goods or services to be received after June 30, 2010? If yes, check to see that the supplier charged HST as required (note that Provincial entities will begin paying HST on July 1, 2010 but not before). While suppliers will be charging HST before July 1, 2010 for supplies to be received after June 2010 and it will be reported on a GST/HST return that includes July 1, if you fail to do so, the person receiving those goods or services is still liable to pay the tax to the government, and may be required to do so as a result of future CRA audits. 5 P a g e H S & P A R T N E R S L L P

6 LARGE VENDORS For businesses who make over $10 million in taxable supplies annually (as part of a corporate group), Ontario has decided to require repayment of the 8% Ontario part of input tax credits (ITCs) claimed for certain specified expenses. The ITCs must be claimed, since this reduces the amount of Net Tax the large vendor pays to the Federal Government, and the restricted amounts are then repaid to the Province of Ontario. These restrictions will be in place for 5 years and then will decrease by 25% for the next 4 years (being eliminated in 2018). Specified expenses include energy (with some reductions for manufacturing or research); telecommunications (with certain exceptions); purchase, parts/services and fuel (except diesel) of road vehicles weighing less than 3,000 kg and meals and entertainment expense that is subject to the 50% deduction rule. (Generally, the restrictions do not apply to purchases for resupply). 15. Have you made more than $10 million in taxable supplies in the past year (including all associated companies in the corporate group)? If yes, ensure that ITCs claimed on the restricted expenses have been tracked so they can be repaid as required. (If you operate in BC, similar restrictions apply but since repayment is to the BC government, these are tracked separately). 16. If you claimed ITCs for restricted road vehicles, when you calculate the repayment did you consider the exceptions for trailers, taxis, parts added more than 12 months after vehicle was acquired or brought into Ontario and parts used for routine repair or maintenance? If the restricted road vehicle was acquired for resupply in Ontario, supplier use of vehicle prior to resale will require repayment of 2% of the ITCs claimed on the vehicle cost for every month it was used before resale (Formula: ITC * 2% * # of months). 17. If you must repay ITCs for energy expense, did you manufacture goods for resale? If yes, ensure that you have considered the reduction in the repayment and have applied the proper factors. (There is one for SR&ED and one for manufacturing). 18. If you are a large vendor, did you claim ITCs for telecommunications expense? If yes, ensure that you separate out the cost of internet access services, web-hosting services, toll-free telephone services and telecommunication 6 P a g e H S & P A R T N E R S L L P

7 services acquired strictly in relation to a convention they sponsored or organized. These are not subject to the repayment. If the large vendor is invoiced for restricted and non-restricted telecommunication supplies together so they cannot easily be determined, there are three percentages to estimate the repayment of ITCs. If the invoice includes restricted services, non restricted services and non-restricted goods, the repayment is reduced by 14%. If the invoice includes restricted services and non-restricted services (but no goods), the reduction is 4%. If the invoice has restricted services and non-restricted goods (but no non-restricted services), the repayment is reduced by 11%. 19. If you are a large vendor and claimed ITCs for meals and entertainment did you separate out the fully deductible amounts before calculating the repayment? Meals and entertainment that are not subject to the 50% (generally) add back of ITCs require no repayment. This would include the staff Christmas party and summer picnic and those expenses covered under remote work site provisions. For other meals or entertainment expenses acquired in Ontario, the 50% non-deductible portion (including tips) should be carved out and of the remaining ITC claim (i.e. the HST paid on half the expense) 8/13ths is repayable by the vendor. COMPLIANCE There is no separate registration or reporting required for HST. GST registration and all elections include HST. For all supplies in Ontario to which GST applies, HST will apply after June 30, The only difference will be a Provincial point of sale rebate of the 8% part of the HST for certain supplies, and a different rate of rebate for the 8% part of the HST than the 5% part, for public service bodies. All exemptions for HST are found in Schedule V of the GST/HST legislation (the Excise Tax Act) and these exemptions apply only to supplies of goods and services specifically listed there. No purchaser in Canada is exempt from paying HST and no supplier in Canada is exempt from collecting it. 20. Have you modified your accounting system to track HST paid and collected? GST and HST collected can be reported together as long as the rate of tax can easily be determined for future adjustments. HST is collectible on post July 1, 2010 supplies that are paid or invoiced after April 30, so you will need to have the ability to track this. HST collected in May and June of 2010 must be reported on their GST/HST return that includes 7 P a g e H S & P A R T N E R S L L P

8 July 1, This may differ from the reporting requirement for GST collected in May and June. 21. Have you formatted invoices and cash registers to calculate HST instead of GST and ORST as well as Ontario HST point of sale rebates? While GST and HST are reported together on the GST/HST return, many suppliers will be charging both GST and HST (during May and June 2010 and afterward if you have customers outside Ontario) and may need to separate the two. PST charged will need to be tracked until June 30, 2010 and perhaps until November Have you trained staff on the rules for when to collect HST, when to offer a rebate and how to deal with returns and price adjustments? This needs to be done before May 1, 2010 where prepayments will be received for supplies made after June 30, 2010 and certainly for all supplies after June 30, P a g e H S & P A R T N E R S L L P

9 Electronic Reporting Requirements for 2010 Effective for reporting periods ending on or after July 1, 2010 certain registrants will be required to file their GST/HST returns through one of four electronic methods. Penalties can be assessed not only for failing to file using the appropriate filing method, but also for not providing required information that will not be reportable on the standard paper returns. For instance, the transitional rebates and tax adjustments for builders are not tracked on the paper returns, nor are the ITC recaptures for both BC and Ontario. WHO IS AFFECTED? 1. All registrants who made over $1.5 million in taxable supplies (with all associates) in the previous fiscal year ending before July 1, All large vendors in BC or Ontario who are required to recapture the provincial part of HST for ITCs claimed on the four categories of restricted expenses. Large vendors are those who made in excess of $10 million in taxable supplies (including all associates). 3. Builders making sales of grand-parented houses (where no HST is paid by the buyer) and purchaser has no entitlement to claim a GST/HST New Housing Rebate or a New Residential Rental Property Rebate. 4. Builders selling houses that were grand-parented on purchase but are HST able on resale. 5. Builders who must report a transitional tax adjustment (to pay estimated PST on grand-parented houses that are completed more than 10% after June 30, 2010). 6. Builders reporting a provincial transitional new housing rebate (for estimated PST buried in non-grand-parented houses that will have HST charged). The threshold for point 1 above includes taxable supplies of goods and services made in Canada (both standard rated and zero rated) of the person and all associates. It does not include supplies made outside Canada, zero rated exports of goods and services, zero-rated financial services, taxable sales of real property or goodwill. 9 P a g e H S & P A R T N E R S L L P

10 METHODS GST/HST NETFILE Internet-based filing of return that will send a confirmation of receipt but does not permit payment. GST/HST TELEFILE Eligible registrants can file their return via a touch tone phone and a toll free number. Payment will have to be made separately. GST/HST Electronic Data Interchange (EDI) EDI is computer to computer exchange of information and eligible registrants can use it to file returns and make payments. GST/HST Internet File Transfer (GIFT) Eligible registrants can use CRA-approved accounting software to file returns. PAYING THE NET TAX Registrants may use online My Payment, or may pay electronically using their financial institution s telephone or online banking, suing an automated bank machine or may pay at an authorized financial institution or CRA office. Please be advised that payment has not been made until received by the CRA or a financial institution acting as its agent. The following list illustrates filing options that are proposed to take effect on July 1, 2010 NETFILE ONLY Businesses that: (a) would be required to recapture ITCs for the provincial part of the HST paid or payable on certain taxable supplies acquired in Ontario and British Columbia; (b) are builders who sell grand-parented housing where the purchaser is not entitled to claim a GST/HST new housing rebate or a new residential rental property rebate; 10 P a g e H S & P A R T N E R S L L P

11 (c) are builders that sell housing that is subject to the HST where the builder purchased the housing on a grand-parented basis; (d) are required to account for the transitional tax adjustment in their net tax calculation; (e) are reporting provincial transitional new housing rebates. NETFILE or TELEFILE Builders that would not be required to NETFILE, have a threshold amount greater than $1.5 million, pay or credit a GST/HST new housing rebate amount to a purchaser, and claim that amount as a deduction from their GST/HST liability. NETFILE, TELEFILE, GIFT or EDI Businesses that would not be required to NETFILE or TELEFILE and have threshold amounts exceeding $1.5 million. (Charities are not required to NETFILE or TELEFILE, regardless of their threshold amounts.) NETFILE, TELEFILE, GIFT, EDI or paper return Businesses that would not be required to file electronically and that have threshold amounts of $1.5 million or less. 11 P a g e H S & P A R T N E R S L L P

12 HST Summary Chart What s Taxable Under the HST and What s Not? 12 P a g e H S & P A R T N E R S L L P

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Our Team Louis J. Sapi, C.A., M.B.A. Managing Partner C.E.O. Tel: (905) 768-2740 Ext. 306 Tagline: 1-866-824-9071 Fax: (905) 678-6760 Email: lsapi@hsp-ca.com S. Sonia Vaknin, B.A., LL.B. Tax Partner Tel: (905) 678-2740 Ext.

321 Tagline: 1-866-824-9069 Fax: (905) 678-6760 Email: mhinchcliffe@hsp-ca.com Niel A. Halbig, B.Comm, C.A., C.P.A. (U.S.) Partner - Audit Tel: (905) 678-2740 Ext.

21 Our Team Louis J. Sapi, C.A., M.B.A. Managing Partner C.E.O. Tel: (905) Ext. 306 Tagline: Fax: (905) S. Sonia Vaknin, B.A., LL.B. Tax Partner Tel: (905) Ext. 365 Tagline: Fax: (905) Mark A. Hinchcliffe, B.A., Sc., C.A. Partner Tel: (905) Ext. 321 Tagline: Fax: (905) Niel A. Halbig, B.Comm, C.A., C.P.A. (U.S.) Partner - Audit Tel: (905) Ext. 355 Tagline: Fax: (905) nhalbig@hsp-ca.com Glenn Watson, C.A. Associate Tel: (905) Fax: (905) gwatson@hsp-ca.com Joozer Karimjee, C.A. Senior Manager Tel: (905) Ext. 315 Fax: (905) jkarimjee@hsp-ca.com Mission Statement Service to be an exceptional provider of professional financial services and products that add value to our clients and consistently delivered with high quality Janna Kantor, B.A., C.G.A. NTR Manager Tel: (905) Ext. 310 Fax: (905) jkantor@hsp-ca.com Excellence to provide excellence in all of our services and have pride in our relationships with our clients, our staff and our advocates Growth to attract new clients by our leadership, integrity and our commitment to enhancing the quality of our clients financial and business affairs 21 P a g e H S & P A R T N E R S L L P

New Brunswick transitional rules for HST increase

New Brunswick transitional rules for HST increase April 2016 The 2016-17 New Brunswick budget announced an increase in the HST rate from 13% to 15%, effective July 1, 2016. Transitional rules have recently