Many regions are already enjoying the fun the HST brings. For those of us just joining the party, here is some information that will may be helpful as you begin your HST adventure.
Individuals and businesses can be forgiven for being confused about the effect this new taxation method. A simple Google search on “HST BC” brought 1, 800,400 results.
The information available about the HST varies, some of it positive and some of it negative. I’ve been to seminars and read many articles on the governments’ websites. I’ve reviewed web articles and created my own. The fact of the matter is, the HST is upon us. It doesn’t look like it’s going away and there’s a lot of information out there.
Ready, Set, Go!
So are you ready for July 1, 2010? Are your business and staff ready? Have you modified your accounting software? Your invoices and other forms? Do you know the HST rules and reporting requirements for your industry?
There are many questions and the answers are not always obvious, so I’d like to provide you with a bit of a checklist to help you over the hurdles.
- October 14, 2009 and before May 2010
- May 1, 2010
- July 1, 2010
Collection of Sales Taxes
- Amend software and/or tax table used to generate invoices, debit and credit notes to accommodate additional tax rates/codes.
- Amend automated system-generated entries (e.g. monthly inter-company charges, monthly rent charges or management fees to reflect the sales tax codes/rates).
- Consider the impact of harmonization on real property contracts during the transitional period and after implementation.
- Determine if prepayments have been made before the implementation date. The transitional rules may be used to determine the tax rate applicable in these situations.
- Develop special codes for point-of-sale rebates for the provincial component of BC HST and OVAT if applicable.
- Do a product and service sales tax analysis. Many goods, services, intangible personal property and real property non-taxable under the old Ontario sale tax legislation will now become taxable as a result of harmonization.
- However, unless a supply is specifically excluded from BC HST or OVAT (e.g. books, children’s clothing), or under a specific Ontario or BC levy post-harmonization (e.g. in Ontario certain insurance premiums), the sales tax status will be consistent with current GST rules, which will simplify tax administration for businesses.
- Do not delete or deactivate old tax rate codes since it may be necessary to use them after implementation during the transitional period.
- Follow transitional rules for volume rebates, promotional allowances, price adjustments, goods returned or exchanges after the July 1, 2010 implementation date and guidance for goods in transit on July 1, 2010.
- Modify tax tables for websites. All GST registrants will automatically become registered to collect BC HST and OVAT.
- Review ongoing or long-term contracts that straddle the harmonization date to ensure the correct sales rate is applied (e.g. service agreements, licenses, memberships and leases).
- Update point-of-sale terminal or cash-register software.
Recovery of Value-Added Taxes Paid (Input Tax Credits and Rebates)
- A business defined as a “large business” (over $10M taxable sales) or a financial institution cannot claim input tax credits for the provincial component on specified restricted expenses. Restrictions will last up five years with a three-year phase out.
- Develop updated or new tax tables/codes for accounts payable systems that automatically record input tax credits or rebates based on embedded taxes. Prepare to code payables for restricted versus non-restricted expenses.
- Do not delete/deactivate old tax rates as they may be required in some situations. If your system can only accommodate one or a limited number of tax rates, develop a manual system to record sales taxes correctly during the transitional period.
- During the transitional period, implement procedures to ensure only the value-added tax paid is recovered. Develop an override procedure to use in instances where old tax rates are charged in error.
- Develop a system to track the federal and provincial components of HST if you are part of the MUSH sector (municipalities, universities, schools, and hospitals) or qualifying non -profit organization.
- Evaluate and update periodic system-generated payments to apply the new taxes.
- Make adjustments to the remittance percentages if you are a small businesses or public service body using the simplified remittance methods.
- Modify employee expenses reimbursement and allowance software or pre-printed forms for not only the new rates but also the restricted expenses and possibly the use of factors. In addition, watch for special transitional rules for expenses reports that straddle the implementation date.
- Selected listed financial institutions must adjust formulae included in the Special Attribution Method calculation if applicable.
- Revise cash flow projections.
- Update budgets and forecasts.
- Modify purchase orders with pre-printed sales tax information or system generated purchase orders to accommodate the new taxes, e.g. the goods for resale exemption will no longer apply in Ontario or British Columbia
- Modify pre-printed price lists or websites containing sales tax information.
- Develop a system to track bad debt adjustment, tracking the tax from the original transaction
- Develop a process to change taxable benefit remittance rates for the 2010 and 2011 taxation years, if applicable.
- Modify documented procedures for how internal tasks are performed whether automatically or manually.
- Additional calculation may be required for the embedded tax content subject to the change-in-use provisions.
Plan to do a test run of sample data for all modified systems as a result of the numerous changes and revisions. This will reduce the potential for error and surprises when the systems are activated on July 1, 2010.
If you need help, call on your software solution provider, chances are they will have seen and assisted dozens of companies thus far.
photo credit: Gord McKenna