Special Release on the HST Marcil Lavallée 500 214 Montreal Road Ottawa, Ontario K1L 8L8 Telephone: 613 745-8387 Fax: 613 745-9584 www.marcil-lavallee.ca
Ontario HST Did you know? Starting July 1, 2010, the Ontario's Retail Sales Tax (RST) will be replaced by the Harmonized Sales Tax (HST). The HST in Ontario will have a combined tax rate of 13%, including the existing 5% federal Goods and Services Tax (GST) and the 8% Ontario component. The HST will be administered by Canada Revenue Agency and will use the same tax base and structure as the actual GST, with a few exceptions. The HST will apply to a wide range of goods and services compared to the current RST. However, for most businesses with taxable revenues, the HST paid on purchases will be recovered in proportion of the commercial use, as currently done with the GST. Different factors must be considered with the arrival of this new tax. Some elements are presented below. RST Vendors who are currently required to file RST returns must file their final RST return for reporting periods ending June 30, 2010. The return must be filed by July 23, 2010. Vendor compensation under the RST system will end for filing periods ending after March 31, 2010. A rebate will be available to a real property contractor for the RST paid on construction materials, held in inventory at the end of the day on June 30, 2010 and used in a residential real property contract to which the HST would apply. Planning For important purchases that are currently subject to RST and for which the provincial component of the HST will be recoverable, consider making the purchases on or after July 1 st, 2010, if possible, to minimize sales tax costs. Conversely, businesses should accelerate the purchase of certain RST exempt supplies (goods or services) before July 1, 2010, if the provincial component of the HST will not be fully recoverable after that date under the HST regime.
Analysis Consider the impact of the HST on your suppliers. Will they pass on any savings due to the HST that is now recoverable or will they have to increase their prices as a result of their inability to recover the HST? Consider the impact of the HST on your clients. Will you be able to pass on any savings due to the HST that is now recoverable or will you have to increase your prices as a result of your inability to recover the HST? Analyze your current taxable revenues to determine if they will be subject to the HST. Will HST apply to goods, services and intangibles supplied to customers outside of Ontario? Different place of supply rules apply depending on the nature of the revenue. The Minister of Finance has announced important changes to these rules on February 25, 2010. Public service body Public service body (PSB) means a non-profit organization, a charity, a municipality, a school authority, a hospital authority, a public college or a university. Some goods and services will be exempt from HST when supplied by a PSB. Therefore, some revenues presently subject to RST might be exempt from HST. For example, RST applies to parking revenues collected by charities, but will no longer by subject to HST effective July 1, 2010. PSB that are currently recovering part of the GST paid on purchases will also recover part of the HST paid as shown below. PSB Provincial Component of HST (8%) recoverable Federal Component of HST (5%) recoverable Nonrecoverable HST Municipalities 78% 100% 1,76% Universities and colleges 78% 67% 3,41% School boards 93% 68% 2,16% Hospitals 87% 83% 1,89% Charities and qualifying non-profit organizations (40% of government funding) 82% 50% 3,94%
Contracts Review existing contracts that straddle July 1, 2010 to modify wording where necessary. Consider special clauses for HST on new contracts to be entered into and that will extend past the July 1, 2010 implementation date. Contracts concluded with the Government of Ontario are currently not subject to GST. Under the Comprehensive Integrated Tax Coordination Agreement between the Government of Canada and the Government of Ontario, these governments have agreed to pay the HST on their purchases. Therefore, contracts concluded with the Governments of Canada and Ontario are to be subject to HST. Restriction for large businesses Large businesses, generally those making taxable supplies worth more than $10 million annually, will be required to recapture input tax credits attributable to the provincial component of HST that is paid in respect of certain goods and services acquired in Ontario, such as cars, fuel, energy costs, telecommunication services, or meals and entertainments. A public service body is not considered to be a large business. Administrative issues Businesses that are registered for GST will have to collect HST. Your HST number will be the same as your current GST number. The GST return forms currently used to remit GST will also be used to remit HST. The only thing changing is the tax rate (13% instead of 5%). Consider any required wording changes needed on your advertisement and promotional flyers when the payment of taxes is mentioned.
Transitional rules You could have to self-assess on purchases made between October 14, 2009 and May 1, 2010 when the good is delivered or part of the service is rendered on or after July 1, 2010. You will have to collect HST when the invoice is dated on or after May 1, 2010 for goods delivered or services rendered on or after July 1, 2010. Specific transitional rules apply to certain supplies. For more details on transitional rules, see Information Notice 3 General Transitional Rules for Ontario HST on the Ontario Ministry of Revenue s Website (http://www.rev.gov.on.ca/en/notices/ hst/03.html) If you have any concerns about the application of HST to your activities or any other question, please contact us.