Coming HST not an issue here? Think again

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July 1 is approaching rapidly and most Manitoba-based businesses who are registrants for GST purposes are unaware that even though they do not have a registered office in B.C. or Ontario, they still must collect and remit the HST whenever they ship products or provide services to customers located in those provinces.

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Hey there, time traveller!
This article was published 26/06/2010 (4540 days ago), so information in it may no longer be current.

July 1 is approaching rapidly and most Manitoba-based businesses who are registrants for GST purposes are unaware that even though they do not have a registered office in B.C. or Ontario, they still must collect and remit the HST whenever they ship products or provide services to customers located in those provinces.

The HST rates for B.C. and Ontario are 12 per cent and 13 per cent respectively. Effective July 1, businesses must calculate and charge GST and HST at the correct rate, depending upon where their customer is located.

If your business sells taxable goods and/or services in each province, you are required to register as a vendor to collect the provincial retail sales tax.

In speaking with business owners and their accountants in Manitoba, only a minority seem to be aware of the impact the coming HST will have on Manitoba-based business operations.

For example, I recently asked a controller for a wholesale distribution business with offices in B.C., Alberta, Saskatchewan and Manitoba whether he was ready for the HST. His reply was that indeed, his B.C. office would be ready to discontinue charging GST at five per cent and begin charging HST at 12 per cent. As a wholesaler, his business didn’t sell to the final customer so virtually all of his customers had an exemption certificate for provincial taxes; the current seven per cent B.C. retail sales tax wasn’t really an issue.

I pointed out that if his Alberta, Saskatchewan or Manitoba offices sold to a B.C. customer, they would have to charge 12 per cent HST as well. He didn’t realize this and also wasn’t considering the fact that the Manitoba operation sells products to customers in northwestern Ontario and will need to charge 13 per cent HST to those customers effective July 1.

Even if the Ontario customer picked up the products at the Manitoba warehouse to take back to Ontario, 13 per cent HST should be charged.

But what about a cash sale, you ask?

Well, a cash-sale customer would be charged five per cent GST and seven per cent PST in Manitoba, so the Ontario customer opting to buy anonymously as a cash customer would pay 12 per cent instead of 13 per cent, but would only be eligible to claim possibly five per cent as an input tax credit rather than 13 per cent. The reason I say possibly is that on purchases in excess of $150, the buyer’s name must be shown on the invoice.

Furthermore, the Canada Revenue Agency’s website says the Ontario-based customer may have to self-assess the eight per cent provincial part of HST if he/she buys goods or services in a non-participating province, but uses, consumes, or supplies them within a participating province. This rule applies in the following situations:

— a person in a participating province buys goods in a non-participating province and brings these goods into a participating province;

— a resident of a participating province arranges for a person in a non-participating province to perform a service (such as advertising or legal services) that is performed outside the participating province, but is consumed, used, or supplied more than 50 per cent in the participating province;

— a resident of a participating province acquires intangible property (such as rights to operate a franchise) in a non-participating province that is consumed, used, or supplied more than 50 per cent in the participating province.

Note: You do not have to self-assess the provincial part of the HST if you are a registrant and the property or service is consumed, used, or supplied at least 90 per cent in your commercial activities. (Source: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/gnrl/hst-tvh/brght/menu-eng.html )

Registrants recover the GST/HST paid or owed on your purchases and expenses related to commercial activities by claiming an Input Tax Credit (ITC) on line 106 of the GST/HST return. Manitoba-based businesses who purchase from vendors located in B.C. and Ontario may soon find themselves being charged 12 per cent and 13 per cent respectively on goods and services they acquire from companies based in those jurisdictions. This will be very likely due either to the unsophisticated billing practices of certain vendors or the way some vendors are being counselled to implement HST “just to be safe.”

Unless you want your cash flow to suffer because you are being charged the incorrect rate of tax, you should carefully scrutinize invoices coming from these jurisdictions and only process them using the five per cent rate of GST applicable to Manitoba-based registrants consuming supplies within the province.

Another reason to be careful is the ambiguity with which Manitoba-based registrants are being told HST affects them. While Manitoba-based registrants will undoubtedly claim ITCs charged to them at the 12 per cent or 13 per cent rate, it still remains to be seen whether, three years from now, amounts above five per cent will be claimable as ITCs when CRA’s auditor is reviewing your records. Just say “no” to anything in excess of five per cent.

Most likely your business will need to get ready to charge HST to customers in B.C. and Ontario. If so, the time may already have passed for you to prepare. Transition rules became effective May 1 for certain types of taxable supplies such as subscriptions, homes being occupied after July 1 but contracted for prior to then, goods paid for prior to July 1 but shipped after July 1, memberships, transportation, etc. If in doubt, assume you are affected and seek to become informed very quickly.

Furthermore, your invoicing and purchasing systems will need to be able to deal with processing refunds and credit notes to correctly handle the taxes in accordance with transition rules in the various jurisdictions.

Conclusion

Before you break out the golf clubs for a relaxing summer, you should review your situation and assess your readiness. Visit http://www.cra-arc.gc.ca/harmonization/ for more information or consult your professional tax adviser who should already have been alerting you to the coming freight train known as the HST.

C. Stuart McKelvie is a fellow of the Institutes of Chartered Accountants and Certified Management Consultants of Manitoba. He is CFO of Celco Controls Ltd., a Manitoba-based company that is a leading full-service automation solution provider with a global presence.

The following rates will apply for Manitoba-based businesses who “supply” to businesses or individuals in other provinces and territories on July 1st:

Source: http://www.taxtips.ca/pst/pstrates.htmJurisdictionHST or GSTRateB.C.HST12%Alberta, Saskatchewan, ManitobaGST5%OntarioHST13%QuebecGST5%Nova ScotiaHST15%Newfoundland, Labrador, New BrunswickHST13%Nunavut, Northwest Territories, Yukon, P.E.I.GST5%

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