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[Originally posted - October 2009]
The planned harmonization of Ontario’s Sales Tax with the federal GST on July 1, 2010 will impact virtually every enterprise providing goods and services in Ontario. Draft legislation is not yet available and the name of the harmonized tax is still unknown: early government publications referred to it as “Ontario Value Added Tax” (OVAT), many professional references are to a “Harmonized Sales Tax” (HST) and recent Ontario Ministry of Revenue Information Notices are calling it “Single Sales Tax” (without an acronym).
We hope that confusion surrounding the naming convention does not spill into the yet to be released draft legislation.
GENERAL INFORMATION
- It is intended that the single sales tax will generally apply to the same base as the GST.
- Although it is widely anticipated that the new tax will take effect on July 1, 2010, the “drop dead date” for the province or federal government to back out of harmonizing is March 31, 2010
- If you are registered for the federal GST, you will automatically be registered for the new Ontario single sales tax
- The tax will be administered by the federal government For most sales, if the current GST applies, then the single sales tax will apply at 13%
ONTARIO DIFFERENCES
Although dubbed a single sales tax, registrants will have to be mindful of the provincial portion (8%) of the tax in several areas.
Sales
Only the 5% GST rate will apply to specific items covered under ‘point-of-sale’ rebates, namely:
- Books
- Children’s clothing and footwear
- Children’s car seats and booster seats
- Diapers
- Feminine hygiene products
Input Tax Credits
Ontario is proposing temporary (5 years) input tax credit (ITC) restrictions on the provincial portion of the tax for large businesses and financial institutions. Large businesses are those with annual taxable sales (including zero-rated sales) in excess of $10 million. No ITC’s on the provincial portion will be available for:
- Energy, except where purchased for use by farms or to produce goods for sale;
- Telecommunication services, other than internet access and toll-free numbers;
- Road vehicles weighing less than 3000 kg, their parts and certain services; and
- Food, beverages and entertainment.
In addition, ITC’s will not be claimable on taxable insurance premiums for all registrants.
Rebates
Public sector bodies will be entitled to rebates of the 8% provincial portion at the following rates:
- Municipalities, universities and colleges: 78%
- School boards: 93%
- Hospitals: 87%
- Charities and qualifying NPOs: 82%
New residential housing will qualify for a rebate of 75% of the provincial component to a maximum of $24,000.
TRANSITIONAL RULES
Goods
The HST will generally apply to the sale of goods if the goods are delivered and ownership transferred to the purchaser on or after July 1, 2010.
Services
The HST will generally apply to services performed on or after July 1, 2010. Services straddling July 1, 2010 will require an apportionment of the payment subject to HST. If all or substantially all (90% or more) of the service is performed before July 1, 2010, HST will not apply.
Leases and Licences
The supply of a lease, licence or similar arrangement will apply to the interval that occurs on or after July 1, 2010. This rule generally applies to goods, intangible personal property and commercial real property. As an exception, HST will not apply to the supply of a property by way of lease, licence or similar arrangement if the lease interval begins before July 1, 2010 and ends before July 31, 2010. (For example, an office equipment lease for the period June 15, 2010 to July 14, 2010 would not be subject to HST).
Sales of Real Property (other than residential housing)
The HST will apply if both ownership and possession of the property are transferred on or after July 1, 2010.
Other
Specific transitional rules apply to direct sellers, budget payment plans, continuous supplies, combined supplies and progress payments/holdbacks.
KEY DATES
The transitional rules specify a number of key dates with respect to requirements in accounting for the provincial components of the HST and the winding down of the PST:
October 14, 2009
The provincial component of the HST will generally not apply to consideration that becomes due or is paid on or before October 14, 2009.
October 15, 2009 to April 30, 2010
Public Service Bodies engaged in GST/HST exempt activities and certain businesses (for example, financial institutions) will be required to self-assess the provincial component of the HST on consideration that becomes due or is paid in this period for goods and services supplied after June 30, 2010.
May 1, 2010
HST generally applies to consideration that becomes due or is paid after April 30, 2010 for goods and services supplied after June 30, 2010.
July 1, 2010
HST will generally apply to consideration that becomes due or paid after July 1, 2010.
October 31, 2010
This date marks the wind-down of the Ontario PST system. Any PST that has not been paid or become payable by this date will be deemed to be payable on October 31, 2010.
WE CAN HELP
The planned HST will affect virtually every organization providing goods and services in Ontario or B.C. We can help ensure that your organization has made the necessary modifications to systems and routines to accommodate the HST implementation and related transitional issues.
Tom Danaher, CMA is an Associate with OTUS Group, specializing in the area of Commodity Tax. You can contact Tom at
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