Ontario and British Columbia provincial governments have proposed the formation of the Harmonized Sales Tax (HST). In Ontario, this new value-added tax will be a combination of the Ontario Retail Sales Tax (8%) and the Goods and Service Tax (5%), for a new combined rate of 13% (12% in BC). Subject to legislative approval, the HST will come into effect on July 1, 2010, and will be federally administered by the Canada Revenue Agency
As we move closer to the implementation date, it is important for businesses to have a good understanding of the impact harmonization will have on their companies. How will HST affect current and future purchase and sale transactions? What steps are needed to comply with the new tax? How do I treat transactions that straddle the start date of July 1, 2010?
In order to provide further clarity on these types of transactions during the transition period, the Ontario Government released a general guideline for businesses to follow. While the transitional rules are dependent on the nature of the supply: i.e. Sale of goods, services, prepayments, leases, and real property, there are similarities that run throughout each. Some of these points are outlined below:
October 14, 2009: All transactions prior to this date are exempt from HST. Businesses and public service bodies are required to self-assess the Ontario component of the HST where ownership takes place on or after July 1, 2010 but consideration becomes due or is paid after October 14, 2009 and before May 2010.
Example: On January 15, 2010 a restaurant is invoiced for new security equipment, which will be installed upon delivery on July 5, 2010. The Ontario component of the HST is required to be reported
May 1, 2010: The HST would generally apply for property and services provided after July 1, 2010, but consideration becomes due or paid before this date. Example: On May 20, 2010 a homeowner pays for seasonal snow removal, which will occur during the winter of 2010. HST will apply to the sale
July 1, 2010: Implementation date. HST applies to all new transactions going forward
Example: A person enters into a new monthly car lease which commences on July 15, 2010. The HST would apply to the lease payment
October 31, 2010: Official wind-down date for the RST and all outstanding RST becomes payable. During this transitional period, you have the opportunity to plan for the implementation of HST. Early planning is critical to eliminate any unnecessary costs during the transition period. We look forward to assisting you in answering any questions you have concerning this new tax.
Click here for a presentation on the HST