Click to see the BC government’s list of what is (and isn’t) taxable under the new HST
The Province of BC will be harmonizing its retail tax system and adopting the HST effective July 1, 2010. The provinces of New Brunswick, Nova Scotia, and Newfoundland and Labrador have operated under the HST system since 1997. Quebec effectively harmonized its tax regime when GST was introduced in 1991, but under separate legislation and administration. Ontario will be adopting HST on the same date as BC.
Under HST, the Provinces cease to collect and administer separate retail sales taxes in favour of a single regime administered by Canada Revenue Agency. The major reason the Provinces give for adopting HST is to improve business and government efficiency. The HST system eliminates the sales taxes paid by businesses on many inputs, making them more competitive, especially against businesses in other nations, most of which have a value added tax system similar to the GST/HST.
The HST is reflected as a single rate of tax but it is actually composed of a federal portion (GST) and a provincial portion. While the other HST provinces (including Ontario) have a rate of 13% (8% provincial portion), BC will use a 7% provincial rate, yielding an overall rate of 12%.
In simple terms, HST is just GST at a higher rate, and operates under exactly the same rules as GST. Nevertheless, whenever a new system is introduced, there are transitional rules and other points to note.
Registration and Reporting
- All GST registrants are automatically registered for HST. There is no requirement for a separate registration.
- The $30,000 Small Supplier limit remains the same. Currently, Small Suppliers do not collect GST but are required to collect PST. After harmonization, these businesses will be relieved of all tax collection requirements.
- The list of exempt and zero rated supplies remains the same.
- HST uses the same reporting forms as GST. There will be no need to segregate GST and HST, ie all HST/GST collected is reported on the same line, and all GST/HST paid is reported on the same line.
- New requirement: Effective for reporting periods ending on or after July 1, 2010 there will be mandatory electronic filing for registrants with annual taxable sales greater than $1.5 million.
Place of Supply Rules
The place of supply rules determine the rate of tax to be charged on sales. These rules have been in effect since the Atlantic provinces harmonized in 1997, but become more relevant to many businesses with the new variations in tax rates among the provinces. For example, a sale made in BC charges HST of 12%, a sale made to an Alberta customer charges GST of 5%, and a sale made to an Ontario customer charges HST of 13%. Export sales continue to be zero rated, ie no GST or HST charged.
- Place of supply is determined as follows:
- Real Property – physical location
- Sale of Goods – place of delivery or place possession transferred if customer picks up goods
- Leases and Rentals – different rules depending on length of lease, but generally where leased asset is ordinarily located
- Intangible Personal Property (eg software) – where final recipient avails itself of service/access
- Services – location of recipient
- Timing of Tax Generally – GST/HST payable on the earlier of date consideration paid and date consideration due. Payment of a deposit is not consideration.
- Sale of Goods – HST charged only if both ownership and delivery occur after June 30, 2010
- Leases and Licences – consideration allocated between pre and post HST period, and tax charged accordingly
- Services – HST charged on portion rendered after June 30, 2010. GST only if work was substantially complete (90% or more) by June 30, 2010, as long as invoiced prior to November 1, 2010.
- Prepayments – HST charged on payments after May 1, 2010 for supply to be made on or after July 1, 2010. Businesses which are non registrants or otherwise not entitled to a full ITC must self assess the 7% provincial portion of HST on prepayments made October 15, 2009 to April 30, 2010 for a supply of goods or services to be made after June 30, 2010.
Quick Method under HST
The new Quick Method rate for BC under HST is 8.2% , with a 1% reduction (7.2%) on the first $30,000 of taxable goods. With the introduction of the HST, using the Quick Method gets more complicated. Unless 90% or more of sales are taxed at one rate, the registrant must remit tax collected according to the applicable GST/HST. In addition, Quick Method registrants located in an HST province are required to self-assess HST on supplies purchased in non HST provinces.
Suppliers who use the Quick Method currently may wish to review whether this method continues to be advantageous. All registrants will have the option to opt out of the Quick Method effective June 30, 2010.
Under HST, self assessment requirements for purchases made outside BC will be reduced for most businesses. No self assessment is required if the purchase is made in another HST province, or if the recipient is eligible for a full ITC. This means that if the good/service is for use exclusively in the registrant’s commercial activities, no self assessment is required. As noted above, registrants using the Quick Method must self assess for non fixed asset purchases.
Residential Real Property
The HST will bring changes to the new housing rebate, including many grandfathering provisions, which will not be detailed in this article. One provision to note for builders and contractors is that there is a PST rebate available for materials held in inventory on June 30, 2010 to be used for residential construction before December 31, 2010.
Public Service Bodies
Effective July 1, 2010, sales to the Province of BC and its agencies such as ICBC and Worksafe BC will be subject to HST.
Hospitality & Tourism Sectors
All hospitality and tourism services will be subject to HST. The existing 10% tax on liquor and 8% hotel room tax will be repealed. However, the 2% additional hotel tax charged by some municipalities will continue to apply until at least June 30, 2011.
Point of Sale Rebates
BC will allow point of sale rebates of the Provincial portion of the HST on certain items which currently are exempt from PST. The rebates apply to:
- Childrens clothing and footwear
- Car seats
- Feminine hygiene products
- Gas and diesel motor fuel
Wind-Down of PST
- For all businesses, the final PST return is due July 23, 2010.
- Supplemental returns can be filed at a later date for adjustments such as PST recovery on bad debts. Forms must be requested, and there will be a deadline which has not yet been announced.
- There will be a transitional refund available for PST paid after October 14, 2009 and before May 2010 for goods or services delivered or performed after June 2010. An example would be the portion of a prepaid maintenance contract covering the period after June 2010.
- PST transactions prior to July 1, 2010 will be subject to audit for a further four year period.
HST Planning Checklist
- Reprogramme cash registers for new rate and point of sale exemptions.
- Revise invoices to deal with varying GST/HST rates according to place of supply.
- Contemplate HST required on prepayments after May 1, 2010.
- Establish system for self assessment for imported purchases, if applicable.
- Ensure that ITC tracking captures both federal and provincial portions.
- Ensure PST transitional refund claimed, if applicable.
- Reassess Quick Method election.
- Identify savings from phase out of PST and impact on pricing.
Note: The above information is general in nature. Clients are encouraged to contact us with specific HST questions.