If you have not heard yet, we have a proposed harmonization of the PST and GST on July 1, 2010. Currently in Ontario businesses prepare two separate returns, the federal GST (Goods and Services Tax) at a 5% component and the PST (Provincial Sales Tax) at an 8% component. These taxes with the used of transitional periods will be harmonized on July 1, 2010. This change will not be easy, it will take getting used to. For one, the general public will be paying more taxes on purchases and businesses will be overwhelmed with the changes in reporting. In summary it will be a huge tax grab.
How will it affect your Businesses? We have put together a general summary of how this new tax will affect most businesses.
Effect on Most Businesses
- The ability to recover the embedded PST will be quite a break for most businesses for example: Fixed asset purchases and promotional products.
- In Ontario we will report on one return 13% HST (5% federal component and 8% provincial component). One Administration and one Review.
- No PST purchase exemption certificates.
- Cash flow as there is timing difference in recovering tax.
- Effect on existing contracts and relationships.
- New input tax credit restrictions.
Planning for Harmonization
As a business you should consider the impact of the HST and plan accordingly.
- Tax coding and invoices may need to be adjusted for different tax rates: 5% and 13% (12% in BC)
- New tax codes for Goods and Services not currently subject to PST
- PST transitional period (e.g. returned goods, price adjustments)
Deferral of large purchases
- Currently PST-taxable purchases
- Purchaser should be entitled to claim full or partial ITC (including Provincial component)
Acceleration of certain purchases
- Currently PST-exempt purchases that will be HST-taxable (i.e., custom computer software in Ontario). This action will mostly benefit persons not entitled to fully recover provincial component of HST
Purchase vs. lease alternative
- Examine the pros and cons of purchasing v.s leasing property
- As a business you may want to reveiw tax clauses
- Contracts that straddle implementation date
- Review rate of tax to charge- based on place of supply
Learn more about PST-GST general transitional and wind-down rules.
Process and Procedures
The process for implementing the new PST-GST Harmonization will be different for each business. However, most businesses will need to update their current templates and systems, as well as provide training for new system users.