Sales tax harmonization in Ontario next July 1, 2010 appears closer to reality with Ontario’s Bill 218 receiving third reading on December 9, 2009 and the federal government’s Bill C-62 receiving second reading in the Senate on December 11, 2009. It is proposed that, effective July 1, 2010, Ontario’s Retail Sales Tax (RST) be replaced with the HST. The HST would have a combined tax rate of 13 per cent — combining the existing five per cent federal Goods and Services Tax (GST) and an eight per cent Ontario component. The HST would be administered by the Canada Revenue Agency.
Transitional rules were released by the Ontario Government on October 14, 2009 and generally determine when suppliers must collect HST on supplies of goods or services to be provided after June 30, 2010 and when purchasers have to pay HST. They also provide for the winding down of RST and the circumstances in which suppliers do not collect RST on goods and services to be supplied after June 30, 2010.
Generally, suppliers do not collect HST until May 1, 2010 if they supply goods or services for delivery after June 30, 2010. Instead, certain purchasers may have to self-assess HST on transactions between October 14, 2009 and April 30, 2010 for goods or services to be supplied after June 30, 2010. Suppliers who are registered for GST should consult the transitional rules to determine whether they must collect HST after April 30, 2010 on goods and services to be supplied after June 30, 2010. HST will generally apply to the portion after June 30, 2010, unless the services are substantially all performed before July 1, 2010. Furthermore, selected services and supplies of goods are subject to special rules.
HST is intended to reduce business costs. GST-registered organizations will be able to claim refunds of the 12% or 13% HST they pay if they make GST-taxable supplies. However, organizations providing exempt supplies, such as financial and healthcare services, will see their cost of some purchased services rise by 8%, subject to any rebates and credits to which they may be entitled. Generally speaking, public sector organizations eligible for HST rebates should not suffer a higher overall tax cost because of HST.
From a financial management point of view, accountants will need to ensure that general ledger systems and business processes are updated to reflect the changes. This would include establishment of the appropriate general ledger accounts for charging HST to customers, payment of HST for purchase of supplies and services, and collection / payment of the net HST balance collectible or owing from the federal government. Internal controls pertaining to review and approval of HST calculations will need to be reviewed carefully. Budgets and long-range planning models for 2010 onwards will need to be reviewed due to potential lower costs resulting from HST input tax credits.
Companies will need to ensure their billing systems have the capability to collect GST and RST as well as HST in the transition period. Suppliers will also need to consult the HST rules to determine whether their services are subject to 13% HST in Ontario and Atlantic Canada, 12% HST in BC or 5% GST plus applicable RST elsewhere in Canada. These “place of supply” rules can be complex where services are performed in multiple jurisdictions – companies should seek advice early to ensure their billing systems collect the right tax.
The Ministry of Ontario has HST information available on its website, and CRA is conducting informational seminars during 2010. For further information and guidance on HST, please contact your accounting and tax professionals.