Regardless of your opinion about the new Harmonized Sales Taxes in Ontario and British Columbia, they’re here now and they’re probably here to stay—at least for the foreseeable future. So what do you do with that if you’re unhappy about the new taxes? Do you continue to scream and shout? Or do you try and figure out how you can make the most of the situation?
Like it or not, unless you’re planning to fight your province, you’re going to have to prepare, and doing that will almost certainly be easier if you understand what the new taxes are all about.
In BC, the seven percent provincial sales tax and five percent goods and services tax will “harmonize” to create a 12 percent tax. In Ontario, the eight percent PST will combine with the GST to create a 13 percent HST. The harmonized taxes will come into effect in both provinces on July 1, 2010.
The government and other HST supporters claim that the harmonized tax structure will be far more efficient than the existing system, reducing administration and saving businesses, consumers, families and the governments money and resources. Businesses will only have to collect one tax from customers, and pay one tax on the goods and services they need to operate. And because this new efficiency will take place along the entire production line, products should cost less at every stage. That’s the governments’ reasoning anyway.
The government of Ontario says:
Roughly $4.5 billion in embedded sales tax is hidden in the cost of doing business in Ontario. It drives up costs to consumers and places Ontario’s businesses at a competitive disadvantage. … The HST will generally remove this hidden tax by refunding sales taxes paid on most business inputs. These refunds will mean lower prices for many consumer purchases and lower business costs, which experts agree will improve the competitiveness of Ontario businesses and result in increased business investment, leading to more jobs and higher incomes.
Both provinces also plan to cut corporate taxes and provide other relief measures for small and medium-sized businesses. Everyone likes lower taxes, right? And surely those will be good for business.
If you’re worried that your business won’t see the benefits of the HST, or you don’t understand how, it’s probably a good idea to talk to the provincial ministry of finance or Canada Revenue Agency, which will administer the new taxes starting July 1.
But before you do, take a look at this brief list of considerations:
First, you’ll want to know whether the new tax will apply to your business. In Ontario, 83 percent of currently PST-exempt goods will remain so. The following items will no longer be exempt, meaning businesses will have to pay tax on them (for a comprehensive list, you’ll have to contact the ministry of finance:
- Heating fuels
- Internet access fees
- Personal services (e.g., hairstyling)
- Professional services (e.g., legal, accounting and real estate fees and commissions)
In BC, businesses will receive input tax credits which they will use against the HST on business purchases. In addition, there will be point-of-sale HST rebates on books, children’s clothing and footwear, children’s car seats and booster seats, feminine hygiene products and diapers and motor fuels.
If you believe that you will be affected by the HST, it’s a good idea to reconsider your budget for the year and also any contracts that will extend beyond July 1, when the tax comes into effect. You’ll want to make sure that you don’t get burned by contracts that don’t account for collection of the HST.
You’ll also want to find out what you have to do to prepare your billing and point-of-sale systems for the tax—as well as any accounting changes.
You might also want to inform your customers and suppliers in advance. Hopefully, they’re already aware of the coming changes, but the fewer that are caught by surprise the better. You’ll probably want to tell them about the potential upsides hough rather than the bad stuff, so they don’t think you’re just overcharging them or worse.
According the the Certified General Accountants Association of Canada:
Studies (including two noteworthy ones conducted by TD Economics and the Canadian Centre for Policy Alternatives) have found that while the HST represents a shift in the tax burden from businesses to consumers, the offsetting measures should mean the impact on households will not be significant and may even benefit those in lower income brackets. The CCPA study, which looked strictly at the impact of the HST in Ontario, concluded that: “The interests of the poor are relatively well protected in this set of measures. There are no big winners or big losers and the practical impact should be close to what the government promised.”
A responsible business will prepare in advance to deal with the new tax regime. Surely many complained when the federal government implemented the GST (nearly 20 years ago now), but in the end, everyone accepted it and dealt with it (even if they still don’t like it). I’m not just saying, “Do as you’re told!” If you want to protest, that is your right. But all the complaints in the world won’t help you understand or prepare, and without understanding, you’ll just be angry, and without preparation, you’ll be lost come July 1, 2010.
For more information, take a look at these guides for businesses from BC and Ontario.
Here’s a link to the CRA’s GST/HST resource page for good measure: www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/menu-eng.html
First Reference, Internal Controls Editor