Association of Prince Edward Island August 20, 2012 HST Information
Presentation HST Facts Tax System Comparison Massage Therapy Services, GST/PST Current Status Massage Therapy Services, HST Effective April 1, 2013 GST/PST to HST Transition Benefits of HST HST Additional Information 2
HST Facts Effective April 1 st, 2013 (*) HST rate - 14% Federal component - 5% Provincial component 9% Point of sale rebates Heating oil, child-sized clothing, child-sized footwear Rebate program for low and modest income households Administered by the Canada Revenue Agency (CRA) In general, GST rules will apply to HST * Subject to Legislative approval 3
HST Facts Input Tax Credits (ITCs) Input tax credits (ITCs) are credits for the GST/HST paid or payable on most goods and services acquired for consumption, use or supply in a commercial activity. ITCs are based on extent of use in commercial activities. To claim an ITC, a person must be a GST/HST registrant. ITCs are reported on a GST/HST return. 4
HST Facts Application of HST Supplies A supply is the provision of goods or services in any manner Taxable, zero-rated or exempt Small suppliers ( $30,000 revenue from taxable supplies, including zerorated supplies) Taxable Supplies Taxable at the HST rate for the participating province (PEI - 14%) Businesses who make taxable supplies can claim input tax credits for tax paid on inputs acquired to make those supplies 5
HST Facts Application of HST Zero-rated Supplies Taxable at the rate of 0% Businesses who make zero-rated supplies can claim input tax credits for the tax paid on inputs acquired to make those supplies. Zero-rated supplies are effectively tax free 6
HST Facts Application of HST Exempt Supplies Exempt supplies are not subject to the HST Businesses making exempt supplies cannot claim input tax credits for the tax paid on inputs acquired to make those supplies Tax paid on inputs is an additional cost of doing business and becomes embedded in the amount charged by the supplier for the exempt supplies 7
HST Facts Exempt Suppliers and Small Suppliers(*): The business will not be able to claim input tax credits for HST paid by the business HST expense (i.e. HST applied to electricity, rent, etc.) will increase costs for these businesses which may have to be passed on to customers (*) Small suppliers (i.e., those whose revenue from taxable supplies, including zero-rated supplies is $30,000) who choose not to register for GST/HST. 8
Tax System Comparison Provincial Sales Tax (PST) A Cascading Tax Example Tourist accommodation operator pays PST on items such as construction materials, repairs and maintenance, computer equipment and systems, accounting fees, office supplies and accommodation supplies used in providing guest accommodations Operator embeds the PST paid into the cost of accommodations Customer pays GST and PST on cost of accommodations Customer pays tax on tax GST and PST on the PST embedded into the cost of accommodations PST on top of GST on cost of accommodations 9
Tax System Comparison Harmonized Sales Tax (HST) A Value Added Tax Example Tourist accommodation operator pays HST on items such as construction materials, repairs and maintenance, computer equipment and systems, accounting fees, office supplies and accommodation supplies used in providing guest accommodations Operator receives an input tax credit for all HST paid Operator does not embed tax into the cost of accommodations Customer pays HST on cost of accommodations Customer does not pay tax on tax 10
GST/PST Current Status GST/PST on Expenses Subject to GST at 5% Purchase of most goods and services used by massage therapists in their commercial activities Purchase of goods for resale 11
GST/PST Current System GST/PST on Expenses Subject to PST at 10.5% (effective rate) Purchase of goods and services used by massage therapists in their commercial activities Exempt from PST Purchase of goods for resale 12
GST/PST Current Status GST/PST on Expenses Input Tax Credits at 5% for GST Paid or Payable on Business Inputs Purchase of most goods and services used by massage therapists in their commercial activities Purchase of goods for resale 13
HST Effective April 1, 2013 HST on Expenses Subject to HST at 14% Purchase of most goods and services used by massage therapists in their commercial activities Purchase of goods for resale 14
HST Effective April 1, 2013 HST on Expenses Input Tax Credits for 14% HST Paid or Payable on Business Inputs Purchase of goods and services used by massage therapists in their commercial activities Purchase of goods for resale 15
HST Effective April 1, 2013 Input tax credits available for GST/HST paid or payable on most goods and services acquired for consumption, use or supply by a message therapist in their commercial activities Costs reduced by 10.5% on goods and services used by massage therapists in their commercial activities, such as: Laundry services Accounting and legal services Telecommunication services Computers, software and maintenance fees Office Supplies 16
GST/PST and HST Summary 17
Expense Comparison GST/PST versus HST Under GST/PST Tax Regime Under HST Tax Regime Expense Annual GST PST Total Tax ITC Net Tax HST ITC Net Tax Tax Savings Laundry (GST/PST) 1,200 60 126 186 60 126 168 168 0 126 Telephone, fax, internet (GST/PST) 3,000 150 315 465 150 315 420 420 0 315 Supplies (GST/PST) 2,400 120 252 372 120 252 336 336 0 252 Advertising (GST) 1,800 90 0 90 90 0 252 252 0 0 Cleaning (GST) 1,800 90 0 90 90 0 252 252 0 0 Insurance membership (GST) 1,200 60 0 60 60 0 168 168 0 0 Bank charges (N/A) 600 0 0 0 0 0 80 84 0 0 Credit/Debit card charges (N/A) 1,200 0 0 0 0 0 170 170 0 0 Utilities (GST) 780 39 0 39 39 0 109 109 0 0 Accounting fees (GST/PST) 1,200 60 126 186 60 126 168 168 0 126 Office expenses (GST/PST) 900 45 95 140 45 95 126 125 0 95 Rent (GST) 6,600 330 0 330 330 0 924 924 0 0 914 Total savings 914 18
GST/PST Registrant versus Non-Registered Small Supplier Under GST/PST Tax Regime Under HST Tax Regime Expense - See Notes Annual GST PST Total Tax ITC Net Tax HST ITC Net Tax Tax Increase Laundry (GST/PST) 1,200 60 126 186 60 126 168 0 168 42 Telephone, fax, internet (GST/PST) 3,000 150 315 465 150 315 420 0 420 105 Supplies (GST/PST) 2,400 120 252 372 120 252 336 0 336 86 Advertising (GST) 1,800 90 0 90 90 0 252 0 252 252 Cleaning (GST) 1,800 90 0 90 90 0 252 0 252 252 Insurance membership (GST) 1,200 60 0 60 60 0 168 0 168 168 Bank charges (N/A) 600 0 0 0 0 0 84 0 84 84 Credit/Debit card charges (N/A) 1,200 0 0 0 0 0 168 0 168 168 Utilities (GST) 780 39 0 39 39 0 109 0 109 109 Accounting fees (GST/PST) 1,200 60 126 186 60 126 168 0 168 42 Office expenses (GST/PST) 900 45 95 140 45 95 126 0 126 31 Rent (GST) 6,600 330 0 330 330 0 924 0 924 924 914 Tax increase 2,263 19
Registrant versus Non- Registered Small Supplier Current situation Under HST as a registrant Under HST - exempt supplier Revenue 70,000 Revenue - price decrease of 1.3%, same net income 69,090 Expenses - including PST Expenses - including HST Expenses - including HST Revenue - price increase of 3.3%, same net income 72,310 Laundry 1,326 Laundry 1,200 Laundry 1,368 Telephone, fax, internet 3,315 Telephone, fax, internet 3,000 Telephone, fax, internet 3,420 Supplies 2,652 Supplies 2,400 Supplies 2,736 Advertising 1,800 Advertising 1,800 Advertising 2,052 Cleaning 1,800 Cleaning 1,800 Cleaning 2,052 Insurance & membership 1,200 Insurance & membership 1,200 Insurance & membership 1,368 Bank charges 600 Bank charges 600 Bank charges 684 Credit/Debit card charges 1,200 Credit/Debit card charges 1,200 Credit/Debit card charges 1,368 Utilities 780 Utilities 780 Utilities 889 Accounting fees 1,326 Accounting fees 1,200 Accounting fees 1,368 Office expenses 995 Office expenses 900 Office expenses 1,026 Rent 6,600 Rent 6,600 Rent 7,524 Total expenses 23,594 Total expenses 22,680 Total expenses 25,855 Net income 46,406 Net income 46,410 Net income 46,455 20
GST/PST Current System GST/PST on Supplies Subject to GST at 5% Supplies of massage therapy services Exempt from PST at 10.5% (effective rate) Supplies of massage therapy services 21
HST on Supplies On or After April 1, 2013 Subject to HST at 14% Supplies of massage therapy services 22
GST/PST to HST Transition Transition rules Prevent double taxation Prevent gaps in the application of tax The following information on transition rules is based on the rules in place in Ontario and British Columbia No decision has been made on transition rules for PEI Barring unforeseen circumstances, PEI is likely to follow the transition rules established in Ontario and British Columbia 23
GST/PST to HST Transition Transition issues that may affect massage therapists: Massage therapy sessions paid for prior to April 1, 2013 and the service performed on or after April 1, 2013 Sessions for use of saunas paid for prior to April 1, 2013 and used on or after April 1, 2013 Things to consider: When the service is performed When an amount for the service becomes due Whether an amount has been paid without becoming due 24
HST Additional Information Department of Finance, Energy and Municipal Affairs hst@gov.pe.ca E-mail www.gov.pe.ca/hst - Website Canada Revenue Agency (CRA) www.cra-arc.gc.ca 25