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Vancouver, B.C. V6E 4G1
604.687.4747
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700 – 2755 Lougheed Hwy.,
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V3B 5Y9
604.941.8266
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301 – 1656 Martin Drive,
White Rock, B.C.
V4A 6E7
604.531.1154
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604-932-4777
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What is
Harmonized Sales Tax? (click here for a Printable PDF Version of this Article) HST is a combined Federal and Provincial
sales tax that is intended to simplify compliance, and reduce the cost
of business inputs and compliance. Like GST, HST is administered
under the Excise Tax Act by the Canada Revenue Agency and is conceptually
very similar to GST. Effective July 1, 2010, BC and Ontario will
drop their provincial sales taxes and become participating provinces
in the HST. New Brunswick, Nova Scotia and Newfoundland already
participate in the HST. After June 30, 2010, HST will apply
at 12% in BC and 13% in ON, NB, NS and NL, and there will be no
PST in these provinces. GST at 5% will apply in all other provinces
and territories along with PST, as levied by the particular province
or territory. Like GST, many businesses will be
able to claim an input tax credit for any HST paid in the course
of their commercial activities (except where the business makes exempt
supplies). Both Ontario and BC negotiated certain
exemptions from HST as a condition of agreeing to become a participating
province. In BC, retailers will provide point of sale rebates
of the provincial portion of the HST for books, children's clothing
and footwear, diapers, children's car and booster seats, feminine
hygiene products and gas and diesel motor fuel. Retailers must
ensure their systems are ready to process these point of sale rebates
and report them on their HST returns. HST Transitional
Rules A number of transitional rules have
been implemented to determine which tax, GST or HST will apply to pre-payments
or to transactions that straddle July 1, 2010. Under these transitional
rules, HST may apply to transactions occurring as
early as October 15, 2009. A key to understanding these rules
is an understanding of when GST/HST become payable. In general
GST/HST is payable on the earlier of two dates: first the date the
consideration for the supply of the good/service is paid and second
the date the consideration becomes due. In general, consideration
becomes due on the date that an invoice is issued, but under certain
deeming rules, it may be considered to have become due on an earlier
date. HST & Pre-Payments Where consideration for a supply is
paid or becomes due before October 15, 2009, the supply will
not be subject to HST, even if the supply of the goods or services
will be made after June 30, 2010. Where consideration for a supply is
paid or becomes due after October 14, 2009 and before May 1, 2010,
and the supply of the goods or services will be made after
June 30, 2010, certain purchasers may be required to self-assess
the provincial portion of the HST. Rather than specify who is
required to self-assess, the transitional rules specify who is not
required to self assess HST. Any purchaser who is a "consumer"1
or who is entitled to claim a full input tax credit of the GST/HST
applicable to the transaction will not be required to self assess
the provincial portion of the HST. Purchasers
who will be required to self-assess include, amongst others, un-registered
small suppliers, persons who make exempt supplies (e.g. health care
services, financial services, etc.), registrants who use the quick method,
and charities and public service bodies. Where consideration for a supply is
paid or becomes due after April 30, 2010 and before July 1, 2010,
and the supply of the goods or services will be made after
June 30, 2010, vendors will be required to collect HST
on the transaction. Despite the foregoing, the sale
of goods will only be subject to HST where delivery of the goods
and the transfer of ownership both occur after June 30, 2010. HST & Transactions that Straddle
July 1, 2010 Where property is supplied by way
of lease or license, the portion of the consideration that relates
to time periods after June 30, 2010 will be subject to HST.
However, where the lease term begins before July 1, 2010 and
ends before July 31, 2010, only GST will apply. HST will apply to the portion of
a service that is performed after June 30, 2010. The portion
that is performed before July 1, 2010 will only be subject to
GST. In addition, where the work is 90% or more complete by June
30, 2010, only GST will apply. Input Tax Credit Recapture for Certain Business on Certain Property and Services The transitional rules also contain
provisions that will effectively limit the ability of financial institutions
and "large businesses" to claim input tax credits on the provincial
portion of HST paid on certain property and services. A particular
business will be considered a "large business" where it has greater
than $10,000,000 in annual sales in its preceding fiscal period, including
sales by "associated persons". In BC, the recapture rule will
deny the claiming of 100% of the provincial portion of the ITCs on these
property and services for 5 years (i.e. from July 1, 2010 to June 30,
2015) and then will be phased out over a 3 year period (75% recapture
from July 1, 2015 to June 30, 2016, 50% recapture from July 1, 2016
to June 30, 2017 and 25% recapture from July 1, 2017 to June 30, 2018). These restrictions will generally apply
to purchases of energy (except for energy used in the production of
goods for resale), telecommunication services (except for internet access
services, web-hosting services, or toll-free telephone services), motor
vehicles weighing less than 3,000 kg, and meals and entertainment. Taxpayers subject to the ITC restriction
rules must report the recaptured ITCs on the filing of their HST returns
and may not simply forego the claiming of the provincial portion of
the HST in order to fulfill these requirements. Accordingly,
affected Taxpayers are required to track restricted ITCs. Real Property Transitional
Rules The HST legislation includes a number
of transitional rules that apply to new housing transactions that straddle
July 1, 2010. The intent of these rules is to ensure that neither
the builder nor the purchaser of new housing is at an advantage or disadvantage
under the HST regime as compared to under the old regime. Grandparented Homes Sales of certain types of newly constructed
or substantially renovated homes under agreements entered into, on or
before November 18, 2009 will not be subject to the HST, even if both
ownership and possession of the homes are transferred after June 2010.
This exception applies to sales of single-unit homes to individuals
and to sales of residential condominiums to individuals, corporations,
trusts, etc. (a "Grandparented Home"). This exception
does not apply to traditional apartment buildings, duplexes,
mobile homes, floating homes and homes built by owners for their personal
use where construction straddles July 1, 2010. Builders of Grandparented Homes are
generally required to pay a transitional tax adjustment, depending on
the degree of completion on July 1, 2010. For grandparented
single-unit homes, the transitional tax is a maximum of 2% of the
purchase price of the home (when the home is less than 10% complete
on July 1, 2010), and is reduced to 0% (when the home is greater than
90% complete on July 1, 2010). Builders would also be required
to meet certain reporting and disclosure requirements for Grandparented
Homes. For grandparented residential condominiums, the
transitional tax is a flat 2% of the purchase price of the home, but
the builder may be eligible for a PST Transitional New Housing Rebate. PST Transitional New Housing Rebate For new homes that would be subject
to the provincial component of the HST after June 2010, a PST Transitional
New Housing Rebate would be available to provide relief in respect of
the PST embedded in the price of the home at June 30, 2010. For newly constructed or substantially
renovated single-unit homes, including detached homes, semi-detached
homes, attached homes, and duplexes, the PST Transitional New Housing
Rebate would be available to individuals purchasing the home or to builders
who first rent the home, as the case may be, after June 2010. For these
new homes, the rebate would only be available where the proposed HST
would apply. It would not be available for Grandparented Homes. For newly constructed or substantially
renovated homes that are residential condominiums, traditional apartment
buildings, or new additions to traditional apartment buildings, the
PST Transitional New Housing Rebate would be available to the builder
rather than the purchaser. For new homes that are residential
condominiums, the rebate would be available where the transitional tax
adjustment or the HST would apply, as applicable. Place of Supply
Rules The Excise Tax Act contains "place
of supply" rules which are critical in determining what tax rate
is charged by a supplier of goods or services. For example, after
June 30, 2010 a business located in BC is required to charge HST at
13% on goods or services that are considered to be supplied in Ontario,
but only GST at 5% if they are considered supplied in Alberta.
Businesses supplying goods or services to customers in various provinces
need to introduce systems that will ensure they are charging the correct
rate of tax, GST at 5%, or HST at 12% (BC only) or 13% (ON, NB, NS and
NL) - see the table of Sales Tax Rates below for a complete listing
of sales tax rates. Because of these different rates, Taxpayers
will be required to track the provincial component of the HST charged
on sales by province for reporting on their HST returns. Place of Supply – Goods and Real Property Goods are considered to be supplied
in the province in which physical possession is transferred.
For instance, if the customer picks up the goods at the vendor's premises,
the place of supply is at the vendor's premises. If the vendor
either personally delivers or arranges for
delivery of the goods to the customer's premises, the place of supply
is at the customer's premises. Note that the place where
title transfers (for example, f.o.b. place) is not relevant in determining
the place of delivery. Real property is considered supplied in
the province in which it is located. Place of Supply – Services The new general place of supply
rule for services introduces a four stage test. Where the
place of supply cannot be determined under the first stage, the next
stage is applied. Under the first stage test, the supply of a
service is considered to be made in a province if, in the normal course
of business, the supplier of the service obtains an address of the recipient
that is located in the province and that is the home or business
address in Canada of the recipient that is most "closely connected"
with the supply. If the supplier does not obtain a home or business
address in Canada of the recipient, then any other address of the recipient
that is located in the province and is most "closely connected"
with the supply will be considered the place of supply. The CRA
has not provided any guidance on the meaning of "closely connected". Note that there are exceptions to
the general rule for various types of services, including services
in respect of real property, services in respect of tangible personal
property, personal services, litigation services, etc. Place of Supply – Intangible Personal Property The new place of supply rules for
IPP (for example, inventions, patents, trade secrets, trademarks,
trade names, copyrights or industrial designs) depend on the nature
of the IPP and whether it relates to real property; tangible personal
property; services to be performed; or other supplies of IPP. Real Property Generally, sales of newly constructed
or substantially renovated homes would be subject to the proposed HST,
where both ownership and possession of the homes are transferred after
June, 2010 (except for Grandparented Homes as discussed above). New Housing Rebates New Housing Rebates will be available
for the provincial component of the HST paid for all types of housing
eligible for the GST New Housing Rebate. Qualifying housing would
generally include the following types of newly constructed and substantially
renovated homes used as a primary place of residence by an individual
or qualifying relation of the individual:
The New Housing Rebate would be subject
to the same eligibility conditions as the New Housing Rebate under the
GST. The calculation of the rebate depends on which of the foregoing
situations applies. For example, for an individual purchasing
a new single unit house, the rebate is 71.43% of the 7% provincial portion
of HST paid, to a maximum of $26,250 [which caps the New Housing Rebate
at a cost of $525,000]. New Rental Housing Rebate B.C. is proposing to provide an enhanced
new rental housing rebate of 71.43% of the 7% provincial component of
the HST paid, up to a maximum rebate of $26,250. B.C.'s new
rental housing rebate will be available for the provincial component
of the HST paid for all types of new or substantially renovated rental
housing, and would be subject to the same eligibility conditions, as
the GST rebate for new residential rental properties. This would include the following types
of rental housing where it reasonably can be expected that the first
use of the housing would be for occupancy or use by an individual under
a rental arrangement or for occupancy by the builder as a primary place
of residence for a period of at least one year:
The rebate for new rental housing will
be administered in a manner similar to the GST rebate for new residential
rental properties. Self-Assessment
on Imports into BC Persons who import goods or services
into BC may be required to self-assess GST and/or the provincial portion
of HST. However, no self-assessment is required where HST was
paid at the time of purchase in another province or on importation into
Canada, nor where the purchaser is entitled to a full input tax credit
for any GST/HST paid. Special Industries
and Rules There are special HST transitional
and HST rules to persons who are involved in the financial services
industry, residential and commercial property builders, charities, contractors
and developers, passenger and freight transporters and persons who are
considered Direct Sellers or who provide Continuous Supplies. Other Matters A person who is already registered
for GST need not register for HST and will begin reporting the HST on
new revised HST returns starting July 1, 2010 using the person's existing
GST number. Registrants with greater than $1.5 million in annual taxable supplies (including supplies by "associated persons") or registrants that are subject to the recaptured ITC provisions for the provincial portion of the HST and certain builders affected by the transitional housing measures in BC will be required to electronically file their HST returns starting July 1, 2010 by means of a specified method. The particular method required will depend on which of the foregoing criteria requires the registrant to electronically file. The specified methods are GST / HST Netfile, GST / HST Telefile, Electronic Data Interchange or GST / HST Internet File Transfer options. We can help! References For more information on how the HST
will affect you or your business, please refer to the following sources:
http://www.sbr.gov.bc.ca/ http://www.gov.bc.ca/hst/tax_
http://www.cra-arc.gc.ca/tx/ http://www.cra-arc.gc.ca/gncy/
http://www.cra-arc.gc.ca/vnts/ http://www.cra-arc.gc.ca/vnts/ http://www.cra-arc.gc.ca/gncy/ SALES TAX RATES IN CANADA EFFECTIVE JULY 1, 2010
DMCL
Chartered Accountants DMCL
is a leading full-service firm of Chartered Accountants located in the
Lower Mainland of Vancouver, with 130 professional and support personnel
in its Vancouver, White Rock and Port Coquitlam offices. DMCL
offers a full range of high-quality assurance, tax and business advisory
services to clients in a wide variety of industries. DMCL is also
an independent member of Moore Stephens International, a leading global
professional services association.
DMCL's taxation services are a solution focused – minimizing tax
and developing and managing tax strategy. DMCL has an exceptional team
of tax professionals that specialize in both Canadian and US Tax, including
expatriate taxation, that serve individuals, entrepreneurs , private
companies and public corporations in a variety of industries. If you
have taxation needs, do not hesitate to contact a member of the DMCL
tax team. |
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