The HST Blog : Canada Harmonized Sales Tax Lawyer Cyndee Todgham Cherniak for Assessments, PST & RST Issues in Ontario, British Columbia & Quebec

Based on the current Canada Revenue Agency (CRA) position on deposits, a vendor/purchaser may not be able to get around the harmonized sales tax (HST) transition rules by having a client/customer pre-pay a deposit on April 30 or before.  The CRA's position (following statutory provisions in the GST Legislation) is that a deposit is not treated as a payment for a supply until the supplier applies it against the consideration for that supply. For example, if a person pays a deposit of $100 in April 2010 but the consideration for a taxable supply of property/a service becomes due (and the deposit is applied) on or after July 1, the $100 deposit and the balance of the consideration will be subject to HST.

The relevant statutory provision is subsection 168(9) of the Excise Tax Act (Canada), which provides:

For the purposes of [the rules on when tax is payable], a deposit (other than a deposit in respect of a covering or container ...), whether refundable or not, given in respect of a supply shall not be considered as consideration paid for the supply unless and until the supplier applies the deposit as consideration for the supply."

This provision does not leave much discretion to the CRA auditors.  I can look into my crystal ball and hear them now quoting this section after HST implementation and saying that they have no choice as the Act mandates them to issue assessments in respect of deposits.  Without a legal clarification or an administrative statement, there is assessment risk - real assessment risk.

The reason for this rule is that until the property or service is actually supplied, it is not known what was provided and whether it was provided.  It is possible that  a service/good is never be provided and, therefore, the deposit would be returned.  It is possible that an exempt or zero-rated service would be provided and, therefore, no GST/HST would be payable. 

The characterization as a refundable deposit is the problem.  The same problem exists relating to retainers and other forms of deposit that are money on account and not consideration for property or services.

Please be careful to characterize pre-payments as pre-payments.  Otherwise, a CRA auditor may take the position in the future that HST was payable, collectible and/or remittable on amounts paid before the May 1, 2010 transition rule deadline.

A little guidance is provided in CRA New Memorandum Series 19.1 Real Property and GST/HST.  For clarification, the problem is NOT restricted to real property - this is just a policy to read.  The CRA has not issued a policy statement on deposits.

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Many businesses in Ontario and British Columbia are not prepared for harmonized sales tax (HST) transition, which starts on May 1, 2010.  Yes, July 1, 2010 is the official implementation date for HST.  However, the transition rules require businesses that deliver property and/or render services after (or lease goods beyond) July 1, 2010 to collect and remit HST with respect to consideration paid after May 1, 2010.  In other words, any contracts entered into after May 1, 2010 where consideration is paid after May 1, 2010 for property delivered or leased or services rendered after July 1, 2010 would be subject to HST.  The two key facts to remember for the HST transition rules at issue are (1) delivery/provision/rental after July 1, 2010 and (2) payment received after May 1, 2010.

It is not clear why the Governments decided to implement this transition rule - except the concern that consumers and exempt businesses would somehow circumvent HST in the months of May and June 2010.

In the end, it is businesses that are most at risk.  If a vendor makes a mistake and fails to charge HST, they may be audited and assessed a penalty for failure to collect HST.  When this happens, the HST is an unrecoverable cost to the business (unless the business can pursue the consumer).

If you consider goods, this is where the vendor may get hit hard.  The vendor of goods would likely collect both GST and Ontario retail sales tax (ORST) (unless the goods are exempt from ORST) in May or June because most goods are subject to ORST.  However, a Canada Revenue Agency auditor can come along and reassess the vendor for HST if the transition rules apply.

For example, if a vendor enters into a contract to sell a $200,000 motor home on May 15, 2010 and receives payment in full, he/she may collect GST in the amount of $10,000 and mistakenly collect ORST in the amount of $16,000.  If the motor home is delivered in August 2010 (because it needed to be manufactured), the vendor should have collected HST and not ORST.  If the vendor remits the GST to the Receiver General of Canada and the ORST to the Minister of Finance in Ontario, a Canada Revenue Agency auditor may assess the vendor for failure to collect and remit HST (or may even take the position that the ORST was actually HST and that the vendor collected and did not remit HST).  The vendor may be assessed the $16,000 and interest and a penalty for making a mistake.  This mistake could require the vendor to pay over $20,000 depending on when the audit occurs (taking into account interest and penalties).

If more than one mistake is made between May 1, 2010 and July 1, 2010, the amounts could really add up.

The HST transition rules are flawed.  The vendor may face a catch-22 situation.  If the vendor promises to deliver the motor home on June 25, 2010 and collects the $200,000 on May 15, 2010, the vendor would believe the $16,000 is ORST.  The vendor must remit the ORST with its May ORST return that is due on June 23, 2010.  If the motor home is not available by June 30, 2010 and the motor home is delivered after July 1, 2010, the HST transition rules would turn the ORST into HST.  Under the HST transition rules, the vendor would be required to remit the HST with it GST/HST return for July 2010, which is due on August 30, 2010.  In other words, the vendor is required to keep the HST a little bit longer and remit the amount to the Receiver General of Canada instead of the Minister of Finance.

It will be easy for an auditor to come along in 2012 and say what a vendor should have done in the circumstances.  The auditor may not be sympathetic to the fact that the vendor did collect the right amount of sales taxes and that the Government of Ontario actually was not out any money.

Where the Government of Ontario would be out money is with respect previously non-taxable services and previously exempt goods.  With respect to the ORST exempt goods, Ontario taxation policy effectively changes on May 1, 2010 (e.g., custom computer software, bicycles, manufacturing and production equipment, etc.).

With respect to services, this is really the focus of the HST transition rules,  Here are some links to articles I have written that may help service providers:

• The HST transition rules for lawyers, accountants and other service providers http://tinyurl.com/y9t268x
• Make an harmonized sales tax preparedness list and check it twice http://tinyurl.com/328bgea
• HST Blog articles on transition rules http://www.thehstblog.com/articles/transition-rules/

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I have linked many of the harmonized sales tax (HST) publications by the Government of Ontario, Government of British Columbia, the Canada Revenue Agency and the Federal Department of Finance in the HST Library. Look at the horizontal bar at the top of this blog (below the lighthouse).  These documents contain the official position on what are the transition rules and what they mean.

If you do not find what you are looking for, please go to the links section of the blog in the right side bar.  Publications posted in the last two weeks have not been linked yet - sorry for that,

Most of the rules are vague and difficult to understand - sorry to be the messenger.  The HST transition rules regulations are drafted as broadly as possible so that the auditors can say that your particular situation is covered.  Too bad that the average person may not be able to understand how to apply a general rule to their specific fact situation.

If you need assistance in getting ready for the HST transition, which starts on May 1, 2010 (I have bee saying for a while that July 1 is not really the date), please feel free to contact me at 416-760-8999.

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Ontario has posted a good/help (not entirely complete) publication "What's Taxable Under the HST and What's Not?".  It is a good first attempt at communicating with the public at large about what property and services will be subject to HST.

Broad categories that are broken down into sub-items are:

• clothing and footwear;
• food and beverages;
• home services;
• accommodation and travel;
• around the house;
• motorized vehicles;
• home purchases;
• health products and services;
• memberships, entertainments and sports equipment;
• leases and rentals;
• electronics;
• professional and personal services;
• tobacco; and
• banking and investments.

There document has been prepared more as a self-promotion piece than anything else.  as a result, it does not emphasize the multitude of services, real property and intangible property that will be subject to higher rate taxation.

That being said, a document such as this is needed and useful.

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Sadly, I was at a cemetery on April 27th to bring my beloved Grandmother to her final resting place.  She purchased the plot over 35 years ago before her husband, my Grandfather, passed away. As we drove through the front gates, I saw the big sign saying to buy now to save the harmonized sales tax (HST).  This was creepier than the cemetery itself.

If an individual pays prepays for a cemetery plot at an Ontario cemetery and/or a funeral before July 1, 2010, then HST will not be payable. Wait until after July 1, 2010, then HST may be payable.  I say "may", because who knows what will be the tax rates and tax base at the moment in time when our time comes.  You may not be saving any tax.

My advice is that if you have found the perfect spot for your final resting place and do not want to lose the location, then there may be some benefit to the taking advantage of the limited benefits of the transition rule.  For others, I wish you good health and a long life --- let's not speak of funerals further.

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CTV News is reporting that the Campbell pledges to pass the Bill 9-2010 "Consumption Tax Rebate and Transition Act" by Saturday, May 1, 2010.   The report states:

The B.C. Liberals say they're determined to ensure the controversial harmonized sales tax is introduced as law by Saturday.

Liberal House Leader Mike de Jong says a vote on the proposed law by 6 p.m. Thursday will pave the way for the 12-per-cent HST despite any delay tactics the New Democrats may use.

De Jong says the NDP have known since last July that the HST must be law by May 1 to ensure tax collection regulations can take effect.

He would not say directly if the government will invoke closure to end the HST debate, but is adamant politicians will have the opportunity to vote on the tax.

The interesting fact is that the transition rules require vendors to start to collect HST on May 1, 2010.  So, the passage of the HST laws in British Columbia would be down to the wire.  That being said, the most important aspects on Bill 9-2010 relate to the ending of the British Columbia social service tax (BCSST), which officially occurs on July 1, 2010.

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This may be your last week of harmonized sales tax (HST) freedom. Sorry to be the messenger of the news.

July 1 may be the "official" implementation date of HST in Ontario/British Columbia; however, under the transition rules, all current GST registrants (wherever they are located) currently doing business in Ontario/BC, may be required to collect the 13% HST starting on  May 1, 2010.

Rule 1: If a customer purchases goods after May 1, 2010 AND pays for the goods after May 1, 2010 AND the goods are delivered after July 1, 2010, HST will be collectible on that sale even if the money is paid before July 1, 2010.  For example, a consumer purchases a custom sofa on May 2, 2010.  The delivery date for the sofa is July 23, 2010.  HST will be collectible and payable on the amounts paid for the sofa after May 1, 2010 due to the delivery date of the goods.

Rule 2:  A client purchases services after May 1, 2010 AND pays for the services after May 1, 2010 AND the services are provided after July 1, 2010, HST will be collectible on that sale even if the money is paid before July 1, 2010.  For example, a client contracts with a painter who is really busy due to the incoming HST.  He cannot paint the rooms in the house until August 2010.  Even if the client pays the painter before July 1, 2010, the supply is subject to HST because the services will be performed after July 1, 2010.

Exception to Rule 2: HST will not be payable by other clients of the painter who starts to provide the services before July 1, 2010 and is 90% complete as of July 1, 2010.

Rule #3: If a lessor (supplier) leases equipment to a lessee (recipient) starting on May 1, 2010 for 12 months and is paid in full on May 30, 2010 for the 12 month lease period, GST and HST will be collectible and payable on 10 of the monthly lease installments. GST and Ontario retail sales tax (or British Columbia Social Service tax) would be collectible and payable for 2 (May and June) of the 12 months.  Assumption is that place of supply rules puts the equipment in Ontario or BC.

If a supplier collects HST in May or June 2010, they do not remit it until their first GST/HST return after July 1, 2010.  In other words, this is the one time that it is okay to keep the tax collected for a little longer than your next return.  The reason why the Ontario and British Columbia do not want supplies to remit the HST in May or June is that the provinces will not get the money.  The HST will be characterized and GST in the computer systems.  That being said, all GST, ORST and BCSST must be remitted on time.

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On April 22, 2010, the following exchange took place in Canada's House of Commons during Question Period, that might amuse harmonized sales tax watchers:

Question:

Pierre Paquette, BQ, Joliette, Quebec:

Mr. Speaker, if Quebec achieves sovereignty, then we will have 100% of the power, not just 22%.

According to Quebec's finance minister, Raymond Bachand, negotiations on compensation for harmonizing the QST and the GST are at a standstill because the Conservative government is demanding that Quebec give up its legislative power over taxation. This is another attack against the Quebec nation. The federal government owes Quebec $2.2 billion. It should give Quebec the same treatment as Ontario and British Columbia and reimburse this money.

Why require such an act of submission and resignation from Quebec?

Response:

Ted Menzies, Cons., Parliamentary Secretary to the Minister of Finance:

Mr. Speaker, I would like to thank that hon. member for reminding us that Quebec has not actually harmonized its sales tax. Negotiations continue in good faith with the finance minister of Canada and the finance minister of Quebec. We continue to hold out for a good discussion, and we would ask the hon. members to go back and talk to their colleagues in Quebec.

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I have heard from two clients this week that I have not spoken to in about 3 years.  They both have informed me that they have been contacted by the Ontario Ministry of Finance, which has informed them that they are conducting a retail sales tax (ORST) audit.  They are being audited for the period 2006-2010 (a 4 year period).

Both clients had a prior audit experience.  Both clients asked me if they are being targeted.  I answered - the auditors are doing their jobs and that audits are a normal part of the HST plans.  Most Ontario vendors will be visited by ORST auditors in the next two years.

The good news for these two clients is that we implemented improved compliance procedures since the last audit and that we are comfortable that the audit will be quicker and less painful than the last time.

My advice to companies that have been audited (for ORST) in the past is to expect an ORST audit in the future.  Check your compliance procedures.  Test a month of documents to ensure that the problems previously discovered by the auditor have been corrected (have not reoccurred).  If errors have occurred, determine what you can do to bring yourself into compliance.  Take control over the audit experience by being prepared and ready.  Make sure your documents are in order.  Make sure your accounting records are in order.  Make sure you paid ORST where required on your purchases and you collected and remitted ORST where required on your sales.

A good audit is one that results in the auditor walking away without levying an assessment.  It is possible.

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Today, the Toronto Star published and article entitled "Marketers latch on to HST deadline", which rightly points out that sellers are using harmonized sales tax (HST) implementation on July 1, 2010 as a marketing/sales tool to encourage consumers to buy now (before July 1).  Examples of goods and services that are being marketed by savy marketers include, cars, gym memberships, homes, bikes and season theatre tickets.

I would like to help consumers with the following (which is not a complete analysis):

Bikes: In Ontario, bicycles are exempt from Ontario retail sales tax (ORST).  After July 1, 2010, bikes will be subject to GST and HST in Ontario.  As a result, individuals can save the 8% HST component by purchasing a new bike before July 1, 2010 (and taking delivery before July 1, 2010).  If you plan to by a stationary exercise bicycle, the ORST exemption does not apply and, therefore, the tax will be the same before and after July 1, 2010.

Homes: Most new homes and substantially renovated homes are subject to GST.  Homes are not subject to ORST (or British Columbia social service tax (BCSST)).  That being said, the tangible personal property (e.g., lumber, bricks, tiles, windows, paint, etc.) that is used to build or renovate a home is subject to ORST (and BCSST) and is embedded in the cost. 

After July 1, 2010, new homes will be subject to HST and the buyer may or may not be entitled to receive a new homes rebate.  The HST will be charged on the sale price of the home (not just the tangible goods that were used to build the home).  As a result, more tax is likely payable after July 1, 2010.

As a general rule, used homes that have been lived in by an individual generally are not subject to GST (and will not be subject to HST).  There are a number of exceptions to this rule that are fact specific.

It is important to note that whether a new home or a used home is being purchased/sold, after July 1, 2010, the real estate agent's commission, home appraisal fees, home inspection fees, legal fees, moving services and renovation services will be subject to HST (not previously subject to ORST).  Some buyers and sellers are trying to close deals before July 1, 2010 in order to save the HST component on these fees.

It is important to note that the BCSST rules on services are different than Ontario and some services are subject to BCSST.

Cars: Cars are subject to GST.  Cars are also subject to ORST or BCSST.  The combined tax on a new car should be the same before and after July 1, 2010.

In Ontario, ORST is payable on private transfers of used cars.  This ORST will continue to be payable after July 1, 2010 if a car is sold via a private sale after July 1, 2010.  The ORST is paid at the time the change on ownership is registered at the Ontario Ministry of Transportation.  If a used car is purchased at a car dealership, the dealer will charge GST and HST.

Gym Memberships:  The HST transition rules include a special rule for memberships.  If a membership is purchased before May 1, 2010 and paid for in full before May 1, 2010, then HST is not applicable. If a membership is purchased after May 1, 2010 or paid after May 1, 2010, then HST is payable only in respect of the portion of the membership fees attributable to goods and services rendered after July 1, 2010.  Marketers must make it clear that the special savings apply only in the membership is paid for in full before May 1, 2010.

Here is the example provided by the Government of Ontario:

Example 14: In June 2010, a person purchases a four-month membership in a fitness club for the months of June through September 2010. The HST would be payable with respect to three of the four months of the membership (i.e., on 75 per cent of the total consideration).

Season Tickets to the Theatre: The HST transition rules provide that if a contract for property and/or services are purchased before May 1, 2010 and paid in full before May 1, 2010, then HST will not be applicable.  In order to save HST, some consumers may wish to buy seasons tickets before May 1, 2010.

That being said, in Ontario, amusement ORST is a 10% tax as opposed to an 8% tax.  The amusement ORST applies to admissions into places of amusement (including theatres)depending on the size of the venue (there is an exemption for theatres with fewer than 3,200 seats). As a result, depending on the size of the theatre, it may or may not be beneficial to make the purchase before May 1, 2010.

One quote in the Toronto Sun article struck my attention:

“It’s expected businesses would promote those types of sales,” said Tatiana Chabeaux-Smith, a spokeswoman at Consumer Protection B.C. “There doesn’t seem to be anything deceptive — it’s a sales tactic.”

I have to disagree.  If the car salesman convinces a person to buy a car now in order to save HST, he/she is providing incorrect information in order to make the sale.  This should not be an acceptable sales tactic.  I will predict more small claims court cases after July 1, 2010 when pressure tactics to make a sale are discovered and the enthusiasm for the purchase dissipates.

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The HST Blog is a forum where practitioners should be able to raise good ideas.  I have one to share with you - Since there must be audits, wouldn't it be nice if you could schedule an Ontario retail sales tax audit after July 1, 2010? Wouldn't it be nice to be able to be able say to the Ontario Government that you wish to invite them to your business to conduct the final Ontario retail sales tax audit so that you can put the assessment risk behind you?

Not all businesses would opt for a voluntary audit in the hopes that mistakes will become statute barred (the Retail Sales Tax Act contains a 4 year limitation period, which can be extended if there is a misrepresentation attributable to neglect carelessness or wilful default or fraud).  However, the businesses that have taken care to comply with the Retail Sales Tax Act and regulations thereto would have little to be concerned about and would line up early to close the ORST books.

if there were to be scheduled audits, the business people can arrange their schedules and have the relevant records ready for an auditors review.  This would be a fair approach.  This would be business-friendly approach.

So, Ontario - what do you say to a program where vendors and purchasers can call and schedule a retail sales tax audit at a convenient time?

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Benjamin Alarie and Finn Poschmann have written a very good opinion article in today's Financial Post newspaper entitled "Ontario's quiet taxes through regulation". In this article, they correctly point out that under Canada's Constitution, a province's powers to impose taxes are broad and limited.  They write:

"Canada's constitution and the case law that surrounds it define the relative jurisdiction and powers of the federal government and the provinces. In matters of taxation, government authority is extensive, and legislatures may enact laws imposing a wide range of taxes.

Despite these broad powers, governments are limited in what they may do without legislative approval. They may use regulation, which is not approved by a legislature, to set fees to recover the costs of goods or services they provide to the people being charged the fee. They may not, however, use regulation to impose taxes that fund the general activities of government."

Read more: http://www.financialpost.com/opinion/story.html?id=2940982#ixzz0lw205pO8

The focus of the article is Regulation 66/10, which directs the Ontario Energy Board to assess a special levy on the Independent Electricity System Operator and distributors in respect of and in proportion to the amount of electricity they distribute.  As a result, the discussion is focused on this particular levy (not HST).

That being said, the authors have made the following important points that may arise in HST debates soon or in the case of a big assessment in the future:

• From the perspective of the Constitution Act, 1867, taxes are either direct or indirect; in Canadian law, a direct tax is paid by the person on whom a charge is levied, and an indirect tax is passed on to others, as with most sales taxes. Under subsection 92(2) of the Constitution, provinces have the jurisdiction to impose direct taxes but not indirect taxes.
• In no case ...does a province have the constitutional ability to impose a tax -- direct or indirect --through regulation alone.
• In the event of a successful constitutional challenge that showed the levy to be a tax, however, the province would be under an unambiguous legal obligation to return the revenues.
• The province could impose retroactive tax legislation allowing it to keep the revenue.

The article is worth reading and saving --- in the event of an audit and assessment.

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Aboriginal peoples of Ontario are losing a point of sale exemption with the harmonized sales tax (HST) implementation on July 1, 2010.  Under the Ontario retail sales tax system, an aboriginal individual (e.g., a status Indian), a band and others could make purchases off the reserve and receive a point of sale exemption.  It was sufficient to show a vendor a status card. 

Under the federal goods and services tax (GST) rules, the general rule is that only purchases on the reserve, purchases delivered by the supplier to the reserve and certain purchases in remote areas by approved suppliers are not subject to GST.  All purchases of goods and services off the reserve for consumption, use and /or enjoyment on a reserve at taxable (unless delivered to the reserve by the supplier).  The mistaken belief is that there is no way to know for certain that an aboriginal person will not re-transfer the goods or use the services off the reserve.  Sorry - that is the thinking of the CRA auditor.

The Agenda with Steve Paikin was following and discussing this important and relevant issue before many others (in October 2009).  With HST on the horizon and no clear resolution to the problem, the Chiefs of Ontario are speaking out.  Canada News Wire reports

 "[Ontario Regional] Chief Angus Toulouse points out that the move to implement the HST was done without an economic impact analysis to inform First Nations what the anticipated financial impact will be. The report released today was commissioned by the Chiefs of Ontario organization and estimates that First Nations in Ontario will pay anywhere from $85 to $120 million in the first year of the HST, and that this will continue to increase as incomes and expenditures rise in future years. For a segment of the population that lives at or below the poverty line, and are struggling to build their economies, one wonders if it is really necessary for governments to collect another $100 million annually from the First Nations...

The report, prepared by Dr. Fred Lazar of the Schulich School of Business at York University, estimates that this $100 million represents only 0.1% of the estimated aggregate revenues that the Government of Ontario will receive. "When you look at the expected increase in revenues that the government of Ontario will experience, especially following the three years of temporary tax relief and credits, they will come out significantly ahead," stated Regional Chief Toulouse. This increase in revenues will be due to the broadened tax base created by the harmonization of the taxes. The report estimates that at the present time only 46% of consumer expenditures are subject to the PST and that with the move to the HST, this figure will climb to 56%. "

What is next? An article in the Toronto Sun dated April 21, 2010 entitled "Aboriginal leaders girding for HST battle" raises the concern that various forms of protest may be on the horizon because the government leaders are not listening or acting to rectify the loss of the point of sale exemption in Ontario. In December 2009 at the time of the legislative debates of the Bill 218, aboriginal peoples engaged in peaceful protests at the Ontario legislature.

There are two sides to the underlying problem.  On the one hand, the Canada Revenue Agency and the Federal Government have experienced a number of GST shams connected to reserves.  On the other hand, a very small number of aboriginal peoples making such mistakes should not disadvantage an entire class of peoples.  On the one hand, a tax system requires certainly.  On the other hand, the tax system should reflect the unique (and disadvantaged) circumstances of groups of peoples - many aboriginals live below the property line and every cent is needed for necessities of life.  On the one hand, tax systems are built on paperwork and reporting.  On the other hand, aboriginal peoples in Ontario are disproportionately under-educated and are less able to read and complete complicated forms that are not user-friendly. 

The balancing of interests needs to be fair.  Ontario had the balance correct under the Ontario retail sales tax regime.  The balance needs to be restored under the HST regime.  Those who engage in tax avoidance and scams and shams can be punished.  Innocent peoples should not be disadvantaged.

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On April 19, 2010 the Ontario Ministry of Revenue issued Tax Tip #5 "Public Service Bodies" to give guidance to public service bodies about how harmonized sales tax implementation will affect them.  It is important to note that the document itself says it was issued in "April 2010", which is technically correct - but it may be misleading in 2 years or more when an auditor wishes to use this document against a PSB in the context of an audit.  I  am looking into my crystal ball and see an auditor telling a PSB that they had an entire month before the May 1, 2010 transition rule date to read the document.

This tax tip is for PSBs, which includes charities, municipalities, universities, public colleges, school authorities, hospital authorities and non-profit organizations.  These entities provide exempt supplies (at least in part) and are not entitled to claim full input tax credits to recover goods and services tax (GST) and harmonized sales tax (to the extent that it is applicable on their purchases).  That being said, these entities may be entitled to claim certain public service body rebates:

It is important to note that the provincial rebate percentage in other provinces in the HST Zone (e.g., British Columbia) are different.

What this chart means is that if a charity makes a purchase for $100, it will pay $5 in GST and $8 in HST.  The charity is entitled to a PSB rebate of $2.50 of the GST and $6.56 of the HST.  The charity does not recover $3.94, which is an unrecoverable expense.  When the charity completes its GST/HST return, it must claim the rebate amounts and fill out all the necessary paperwork to recover the $2.50 and $6.56.  While recovery of otherwise unrecoverable amounts is good - there are administrative costs that need to be acknowledged (for which compensation is not available).

Tax Tip #5 covers the mere basics regarding (1) registration (including the small supplier threshold), (2) charging HST, (3) self-assessment (including the transition period between October 14, 2009 and May 1, 2010 - but does not give much assistance), (4) rebates, (5) quick method accounting, (6) special net tax calculation for charities, etc.

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There are a number of key dates in the time lines for harmonized sales tax (HST) in Ontario and British Columbia.  I hope that these time lines help you prepare and organize yourselves.

Ontario

British Columbia

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Whenever the government announces tax reform or a tax auditor plans to conduct an audit, these events that businesses cannot control present an opportunity to revisit past planning.  For example, harmonized sales tax implementation in Ontario and British Columbia on July 1, 2010 and the change in the HST rate in Nova Scotia on July 1, 2010 should encourage proactive businesses to go over their 2010 budget plans.  Some budget items will be affected by the outside changes and, therefore, should be adjusted upwards or downwards so that the business stays within budget.

For example, hospitals, doctors offices, dentists offices, nursing homes/long term care homes, residential rental property businesses, charities, day cares, schools, colleges, universities and other educational institutions, an other businesses engaged in whole or on part in exempt activities will see their costs increase and will not be able to recover 100% of the increased costs.  These are the businesses that will benefit most from the exercise of taking their 2010 Budget, adjusting for new HST costs, recalculating, and then making changes.

In addition, large businesses and large corporate groups (where the business or corporate group makes taxable and zero-rated sales in excess of $10 million per 12 month period) will be subject to the restricted input tax credit rules and, therefore will see certain costs increase by 8% without the corresponding recovery.  Where costs go up, and offsetting change may be required.

These businesses have an opportunity (I know, it does not seem like a positive event)  to review budget plans and make adjustments.  It may be that certain expenses will have to be cut.  it may be that profit margins will have to increase.  It may be that the review of commercial rent (which will be subject to HST after July 1, 2010) will cause a reconsideration of the location of the business and a better location may be identified.  It may be that cost savings opportunities may be identified (e.g.,  subscriptions are a less expensive option if paid before July 1, 2010).   It may be that new technology may be installed to control/reduce energy costs in the long term.  It may be that ORST recovery or GST/HST recovery opportunities will be identified (that the business had been overlooking).  It may be that the investigation will result in a new road map for the business to more profits.

In an unrelated matter last week (which I will use as an example), I assisted a client with a NAFTA verification.  The review of the business operations in preparation of a visit from the United States Customs and Border Protection, the client undertook the analysis of the bill of materials and the costs to produce a product.  That analysis resulted in the client identifying changes in costs due to the appreciation of the Canadian dollar and the squeezing of the profit margin.  As a result of the unwelcome verification, changes were made on the purchase side and sales side of the business.  The result will be a healthier balance sheet at the end of 2010.

Change is not fun.  Change is rarely welcome.  Usually change means more work.  The question is whether the results of the new work will be positive for the business.

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On April 15, 2010, the Ontario Ministry of Revenue reminded Ontario businesses in Tax Tip #4 'Insurance Premiums" that the 8% Ontario retail sales tax will continue to apply to the insurance premiums previously subject to Ontario retail sales tax (ORST).

Tax Tip # 4 states, in part:

In the 2009 Ontario Budget, the government announced a comprehensive tax package that includes moving to an HST at a rate of 13 per cent effective July 1, 2010. Generally, insurance premiums are currently exempt from the federal Goods and Services Tax (GST) as financial services and the treatment under HST will be the same as under GST.
Ontario will continue its application of tax at a rate of 8 per cent on the same types of insurance premiums currently taxed under RST.
 

Tax Tip #4 does not provide information on what insurance is currently subject to ORST and what types of insurance are not currently subject to ORST.  The assumption is made (probably incorrectly, that residents of Ontario know what insurance is subject to ORST).

This posting is not going to set to the entire list of what is and what is not subject to ORST.  It will cover some of the highlights. 

ORST applies to premiums paid under certain contracts of insurance, group insurance plans, contributions paid into funded plans, and on benefits paid out of unfunded plans, casualty and property insurance (excluding auto), including amounts paid for:

• A builder's risk policy: If a contractor takes out insurance on a building under construction, the insurance premium is subject to ORST. This type of policy is not the same as a performance or payment bond which is not subject to ORST.

• Mortgage insurance: Mortgage insurance insures the life of an individual and is not insurance on property. If the insured is a resident of Ontario and the policy is group life insurance, ORST must be collected on the premium regardless of where the property is located. If the mortgage insurance is an individual life insurance policy, ORST is not payable on the policy. If a non-resident of Ontario purchases mortgage life insurance relating to property in Ontario, ORST is generally not payable.
   
• Ontario property insurance: Premiums paid on property located in Ontario are taxable even if the purchaser of the policy is not a resident of Ontario.

• Trip cancellation insurance: This insurance is taxable when sold to an Ontario resident.

• Baggage insurance: This insurance coverage is taxable when sold to an Ontario resident.

There are many forms of insurance that are not subject to ORST.  Generally, ORST does not apply in respect premiums for:

• reinsurance contracts;

• contracts of insurance (other than contracts of group insurance or trip cancellation insurance) for the life, health or physical well-being of insured individuals. This can include individual life insurance purchased by a corporation or organization for creditor protection, buy-sell funding agreements, charitable donations, etc., that is payable to the corporation or organization on the death of the insured;

• payments under annuity contracts;

• an amount payable to obtain a surety;

• a contract for the service, maintenance or warranty of tangible personal property;

• property damage insurance in respect of property wholly outside Ontario, or other insurance (but not group insurance) in respect of risk, perils or events wholly outside Ontario;

• trip interruption insurance. This insurance covers benefits and risks incurred totally outside Ontario, and is exempt if calculated and shown as a separate charge on the customer's invoice;

• insurance contracts entered into by individual foreign representatives and officials located in Ontario who are members of diplomatic missions, consular posts and international organizations;

• premiums, assessments or contributions paid under the:
  1. Canada Pension Plan
  2. Crop Insurance Act (Ontario)
  3. Employment Insurance Act (Canada)
  4. Workers Compensation Act;

• a contract of life insurance that includes an individual insured and members of his or her family or any other individual related to the insured by blood or adoption, under a single policy; and

• automobile insurance premiums.

Certain types of insurance are not subject to ORST if a valid purchase exemption certificate is provided.  If one relies on an exemption (as opposed to a purely non-taxable status), they would review the law to ensure that the exemption will continue after July 1, 2010.

Ironically, this non-harmonization of insurance premium helps Ontario businesses (other than insurance companies) because group policies often have agreed monthly or annual rates and, therefore, keeping the tax rate unchanged results in predictability for the remaining term of the policy.  In a discussion with a client last week (exempt business), we discussed how the expense would remain the same and adjustments to their budget for H2 2010 would not require changes regarding the property insurance and the employee group benefits.

Insurance companies, on the other hand, are disadvantaged because they will be paying HST on commercial rents, electricity, custom computer programs, contracted third party insurance appraiser services, etc. and are not able to recover the additional HST by way of input tax credit.  Eventually, costs will increase and those cost increases will be passed on to businesses.

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Some businesses in Ontario and British Columbia have a promotional opportunity.  Businesses that sell goods and/or services may advertise that if payment in full is received before May 1, 2010 for goods and/or services to be delivered after July 1, 2010, HST will not be payable.  Few customers/clients may be aware of this opportunity to take advantage of the Ontario transition rules and British Columbia transition rules.  Please refer to the HST Library for more government publications on the transition rules.

April 16 - 30, 2010 presents an opportunity to place an ad on your web-site, post a promotional sign in your store window, change your voice mail greeting, or place more traditional advertising.  For example, a hair stylist or massage therapist may offer coupons for services to be delivered after July 1, 2010.  If the client pays in full for the book of coupons before May 1, 2010, then the service provider will not be required to charge, collect and remit HST (even when the pre-paid coupon is used).  Another example is that a buyer of custom furniture may pay for the furniture in full before May 1, 2010 and will not have to pay HST if the custom furniture is delivered after July 1, 2010.

There is a risk for the buyer of non-delivery of goods and/or non-performance of services.  Buyers will have to weigh the credibility of the supplier against their desire to save the HST.  However, if my hair stylist were to present this opportunity to me and I have been going to Jie Matar for years, I would feel comfortable parting with my money.  Each consumer will have to assess their comfort with pre-payment.

NOTE: Prepayment is different than a deposit.  A deposit that can be returned (such as a lawyer's retainer) may not satisfy the payment prior to May 1, 2010 transition rule requirement.  If the deposit is held in trust and is not applied to an invoice for delivery or performance before July 1, 2010, the CRA auditors may expect HST.  The CRA has administrative positions relating to deposits that are based on provisions in the Excise Tax Act.  In other words, use of the word "deposit" may be problematic in an audit.  The payment must be a pre-payment or consideration for the goods and/or services.

If a business takes advantage of the transition rules, they must keep detailed records.  An auditor may show up to conduct an audit in 3 years and will ask why HST was not collected on the deliveries (services performed) that occurred after July 1, 2010.  The business will have to provide evidence of the payment before May 1, 2010 (an auditor will not rely on a statement).  It will be important to enter the receipts of money into the business records (e.g., general ledger accounts for April 2010) as soon as possible and preferably in April 2010.  Frequent trips to the bank in April 2010 is highly recommended so that you can prove the deposits - you must have received the money from the customer or client if you deposited the money in the bank.  The purchase of a "PAID" stamp from the office supplies store would be helpful (but may not be considered definitive proof because the stamp could be used in May, June, July) -- a stamp on each paid invoice along with the date of payment would be evidence if matched with other documents (such as photocopied cheques, bank statements, credit card receipts, etc.).  Scanning documents into computerized records that will show an April 2010 saved date may be useful.

I would like to note that auditors can be difficult and not accept documentary evidence.  lawyers and courts like documentary evidence. A real attempt to keep accurate records may satisfy due diligence defense requirements even if the record-keeping is not perfect.

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After a business realizes that harmonized sales tax (HST) is coming and that changes are required to systems and documentation, the business must figure out what is necessary to ensure compliance.  The government publications help, but do not give enough information to make sure that businesses know what they must do to comply.

It is not sufficient for the Ontario Ministry of Revenue to announce that HST is 13%, HST is payable and collectible where GST is payable and collectible (except if a point of sale rebate is permitted), the implementation day is July 1, 2010, there are transition rules and place of supply rules and most businesses should stop charging Ontario retail sales tax on July 1.  What is missing is effective communication on what steps businesses should take to prepare.  This trial and error approach is costly for businesses - Businesses should try to comply and government will tell them where the mistakes were made by assessing GST/HST, interest and/or penalties.

The onus (and I do not mean legal onus or burden of proof) is on suppliers (sellers/retailers) and recipients (buyers/[purchasers) to figure out the legal requirements and be perfect in their implementation of the law (to the extend it is currently passed) and administrative statements (to the extent they are written and accurately reflect the written or unwritten law) and place of supply rules (which have not been passed by way of law or promulgated by way of regulation yet).  In other words, the communication from government to businesses is insufficient to ensure compliance.

In addition, businesses must effectively communicate within the organization in order to ensure compliance.  Someone must do their best to understand the HST rules and communicate the rules within the organization so that the proper system changes are made.  If the tax department/Chief Financial Officer does not discuss HST implementation with the sales department, the sales persons might not know what is subject to HST and what is not.  The sales persons may not understand when an invoice should include HST and when HST is not payable.  The sales persons might not know that they must charge HST on sales made in May and June if delivery occurs after July 1, 2010.

In addition, the computerized systems cannot change themselves.  Usually there is the information technology (IT) guru within an organization that must write computer source code or undertake configurations to ensure that HST is charged on invoices.  If there is not effective communication with the IT guru about what changes need to be made to electronic documents and computerized systems to record HST, the computers may be of little help in fulfilling their important role(s).

In addition, the IT guru may have to make adjustments to accounting systems so that the record keeping/ accounting programs track the GST and HST properly.  The computer system will be a useful tool to ensure GST and HST collected is added / reported correctly when GST/HST Returns must be completed and filed electronically (or in paper format).  The computer system will be a central tool in recording and reporting input tax credits, rebates, refund and restricted input tax credits.  If the IT guru does not receive clear instructions, he/she might not make all the necessary changes.

Effective compliance often includes an internal audit or monitoring of the systems to ensure that accurate information is communicated.  If no one has this role / function within their job description, the job might not be performed.

If problems are discovered, effective communication is necessary to make new and further adjustments to the system.  For example, if a September 1, 2010 invoice to the Government of Ontario did not include GST and HST (because prior to HST implementation neither taxes were charged), whoever discovers the problem will need to communicate the mistake internally within the organization so that the sales people, the IT guru, human resources, the tax department or CFO and others make the necessary changes.  Someone will also need to contact the Government of Ontario and send the invoice for the GST/HST or amended invoice including GST/HST.

Finally, I have to point out that effective communication extends to lawyers, accountants, customs brokers and other service providers.  A business will get incorrect/incomplete answers to questions if there is ineffective communication to outside service providers.  If you are going to rely on a service provider's help, you need to communicate all the relevant facts and instructions - otherwise the advice or services that you expect to be provided to you may not be provided.

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On April 12, 2010, Ontario released "Preparing for the HST: What You Need to Know" (March 2010), which is a single page document that does help Ontario businesses understand what they need to do.  It states, in part:

• The HST is basically the GST with a provincial component added to arrive at a 13% rate. If no GST applies now, no HST will apply after July 1, 2010. Provincial point of sale rebates mean that selected goods will only be taxed at 5%.
• If you are already registered for GST, no further registration is required. If you are not required to register for GST, you do not need to register for HST.
• Your HST reporting period will be the same as your GST reporting period. You will report both GST and HST charged and collected, and claim input tax credits and rebates in much the same way you have been for GST.
• You should modify accounting, billing and invoicing systems, cash register and point of sale systems, including web interfaces and automatic payments, to switch to HST and remove RST. You should also ensure budgets remove the 8% RST cost from purchases after July 1, 2010 in accordance with the transitional rules. You should also update taxable benefit calculations.
• Consult the transitional rules for transactions straddling the July 1, 2010 date. Ensure you charge HST, as appropriate, on any billings on or after May 1, 2010 for taxable goods, services or intangible property to be supplied after July 1, 2010. Familiarize yourself with the place of supply rules and the temporary restrictions on input tax credits.
• Assess the impact of HST on budget and business plans to account for lower costs and shifts in business purchasing. Evaluate pricing strategies and scrutinize supplier quotes to ensure tax savings are passed on.
• Your final RST return is due on or before July 23, 2010. Supplemental returns will be available for reporting RST amounts collected after July 1, 2010.
   

This Ontario publication does not provide businesses with useful information on what they should be doing to prepare for HST so that they may be in compliance on the implementation date, July 1, 2010.  Information about the actions that businesses must be taking in order to comply is really what businesses need to know.  It is not sufficient to tell businesses to figure it out themselves - in the next 2.5 months.

There are a number of more helpful resources prepared by non-governmental businesses:

• Preparing for Harmonized Sales Tax
• Preparing for Harmonized Sales Tax
• Make an HST Preparedness List and Check it Twice
• Are you HST-Ready? Checklist for Small Ontario Businesses
• Is your Web-site Ready for the HST? 

 We will continue to provide more sources of HST Information.  Please refer to the HST Library (along the top bar of this blog), which links to various useful source documents.  There are only 2.5 months left to get systems in place --- which is not a lot of time.  It often takes months of careful planning and implementation to ensure compliance systems will work when needed.

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After I posted my blog posting yesterday, I was sent the Federation of Rental Housing Providers of Ontario issued a press release entitled "McGuinty Government Dupes Media and Tenants on HST: Tenants not protected from HST". The press release states:

Today the McGuinty Liberal government misled the media and tenants and caused further harm to rental housing quality by announcing that landlords will not be able to pass on HST costs to tenants in above guideline rent increases (AGIs).

“This bizarre move by the Liberal government was designed to capture headlines and dupe the media into believing that tenants are somehow going to be protected from negative HST impacts” said Vince Brescia, President & CEO of FRPO. 

The government gave deliberately misleading information in its press release designed to capture media attention, and also designed to attack landlords rather than help them deal with the huge negative consequences of the HST that are specific to the rental housing industry.

“It is unfortunate that the government has chosen not to help the industry deal with the massive negative impact of the HST on Ontario’s rental stock and tenants” said Brescia. “They seem to be more interested in headlines than in helping tenants”.

This is an interesting press release that goes on to provide more detailed information about the rental housing industry in Ontario and their point of view that harmonized sales tax (HST) costs to landlords will be passed on to renters in the form of higher rents.  It is particularly interesting in light of the fact that HST implementation is only 2.5 months away.  It is also interesting in light of the wage freeze budget.

The tone of the news release is more provocative than what is usual. But, provocation may be necessary.  Many in Ontario can be described as happy sleeping puppies who are not aware of what HST will mean starting on July 1, 2010. If there is misinformation by government officials, then in is n important public service for those who understand what is myth and what is true to come forward.

I will continue to monitor this situation in order to report further on whether landlords will be restricted n their ability to pass on unrecoverable HST costs to tenants/renters of residential real property.  I would expect that landlords would be entitled to pass on unrecoverable HST costs in the form of higher rents.  It will be a significant development if laws and regulations are passed to limit landlords' recovery rights. 

If laws and regulations are passed in relation to one industry, it is a slippery slope to force on businesses unrecoverable HST costs.  The initial announcements at the time of the announcement of HST was that the tax reform was beneficial to business.  The residential rental property industry may disagree at this time.

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The Toronto Star is reporting that the Ontario Liberal Government plans to make a big announcement  to help out renters of real property by restrictions on rent increases.  On the other hand, the announcement restricts the ability of landlords to raise rents to recover unrecoverable harmonized sales tax (HST).

Laurie Monsebraaten reports:

In advance of the harmonized sales tax taking effect in July, sources say the Liberal government will close a loophole in rent regulations that would have allowed landlords to apply for above-guideline rent increases based on the new 13 per cent tax on utilities.

Instead, the new HST costs for utilities will be reflected in rent only as they affect the Consumer Price Index, which the province uses to calculate the annual rent increase guideline. 

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The Canada Revenue Agency (CRA) has made available a WebCast about the completion of the new electronic GST/HST return.  While the WebCast will not win an academy award for best short film or best foreign film, it is worth watching (it is longer than I expected).  If you cannot bear watching the WebCast, there is a transcript.

The WebCast gives important information to registrants for GST (and HST) purposes and others who must file GST/HST Returns.  The WebCast includes important information for builders of real property  and other businesses (anyone with sales over $1.5 Million in annual taxable sales (including exports and other zero-rated supplies)) who must file GST/HST Returns electronically starting with their July 2010 GST/HST Return or the GST/HST Return for the reporting period including July 1, 2010.   The July 1, 2010 date is important because Ontario and British Columbia want to have electronic records on how much HST they should be expecting to receive from Ottawa.

When planning to watch the WebCast, please  bring some healthy popcorn to watch the video as part of the video does explain how exactly you are to complete the GST/HST Return on a line by line basis.

At the present time, there are four different electronic filing options, as follows:

• GST/HST NETFILE
• GST/HST TELEFILE
• GST/HST EDI filing and remitting, and
• Internet File Transfer, and we will review in detail the GST/HST NETFILE option.

For those who have never filed electronically using NETFILE go to www.cra.gc.ca/gsthst-netfile to get signed up. Before you file, you will need your 15 digit Business Number, your Reporting Period dates and your four digit access code.

Watching the WebCast will give businesses who must file in this manner important ideas about how to set up their internal records and reporting systems to enable quick completion of the electronic GST/HST Return.  For example, the manner in which restricted input tax credits are required to be reported would suggest separate internal accounting records (General Ledger) accounts for Ontario, British Columbia, etc.  This would suggest that invoices should clearly indicate the place of the supply (e.g., write on the invoice "The Place of Supply is Ontario and, therefore the applicable GST/HST rate is 13%").  Taking such steps will make it easier for the auditors (and your memories) at the time of an audit.

Based on my discussions with some larger businesses who are being asked to file using the GST/HST NETFILE method, some businesses actually are not able to use the CRA's preferred electronic filing method due to their computer systems.

Another important issue that has arisen is payment.  Non-resident companies like the idea of electronic filing.  However, they do not have a Canadian funds bank account.  To open a Canadian funds bank account, they need to have an extra-provincial registration in a Canadian province of territory for doing business in that jurisdiction.  It is not necessary to have a permanent establishment in the province or territory to open a bank account. However, the CRA looks at the location of bank accounts in its consideration of residency/permanent establishments.  As a result, there is a problem that needs to be resolved to facilitate the quick payment of GST/HST obligations without changing ones characterization for other tax purposes.  I should note that it is not necessary to make payments of GST/HST Returns electronically and the old fashioned method of sending a cheque or wire transfer remains acceptable for now.

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On April 6, 2010, the New Democratic Party in Nova Scotia has announced that it will increase the provincial component HST rate by 2% by July 1, 2010 (when Ontario and British Columbia harmonize). This will result in Nova Scotia having a combined GST/HST rate of 5% + 10% = 15% (the highest in Canada). The Nova Scotia NDP government expects this will mean $214.8 million in much-needed revenue this year.

In that same article, CBCnews reports that the increase in the HST rate is intended to bring the Nova Scotia budget into a balanced state within 4 years. At least, this is what the politicians are telling the electorate and consumers who will be paying more on almost everything.

Nova Scotia joined the HST Zone in 1997 and the consumers have adjusted to the HST regime. That being said, with Ontario and British Columbia joining the HST Zone on July 1, 2010, the Department of Finance has announced new place of supply rules for all in the HST Zone (and outside the HST Zone). We continue to wait for the HST place of supply rules to be announced in a legislative format (i.e., regulations or a Bill). The updated place of supply rules are game changers for services and intangible property and there are notable changes for real property and goods. Nova Scotia, therefore, will be adjusting to the new rules while increasing the cost of mistakes to 15%.

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Many U.S. news outlets are reporting that U.S. White House economic advisor, Paul Volcker, spoke today about the possibility of the United States implementing a value added tax ("VAT") at the federal level.

• CBS - VAT: Will the U.S. Adopt a Value-Added Tax?
• Fox News - Obama Economic Adviser Says U.S. Should Consider 'Value-Added Tax'
• Reuters - Volcker: Taxes likely to rise eventually to tame deficit
  
• New York Times - Will We Get a V.A.T.?

About 150 countries have a VAT. It comes in different shapes and sizes, ranging from 5% in Canada (down from 7% thanks to the federal Conservative Party) to 25% in Sweden. Wikipedia has a great summary of who has what value-added tax and the rates. Canada's value-added tax is called the goods and services tax ("GST"). New Zealand and Australia also have GST. The EU has a value added tax called VAT.  

If the United States moves towards a value added tax regime, there are a number of qualified, English speaking lawyers, accountants, consultants in Canada and ex-Canada Revenue Agency officials who would like a green card (preferably in a warmer State where there are no hurricanes). The Canadians will potentially sign cards saying "Trust us. it's not so bad: At least you do not have States adopting the HST like Ontario and British Columbia".

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I came across an interesting post by Music Central News about the implementation of HST. What is interesting about this post to an HST specialist is:

1) That they have attended GST/HST seminars;

2) They are communicating to their audience the HST as they understand them; and

3) They are concerned about the HST having an impact on an increasing underground economy.

However, I am concerned about such posts - Unfortunately, the information is not prestinely accurate.  They write:

If you have already booked with us for a date after July 1, 2010 and paperwork has been sent out with just the G.S.T. then you will continue to pay just the G.S.T..  An advantage for booking early!

Actually, the transition rule for services to be performed after July 1, 2010 requires (1) the contract to be entered into before May 1, 2010 and (2) payment of consideration before May 1, 2010.  If the payment is received after May 1, 2010, then the services performed after July 1, 2010 would be subject to HST. If the contract is not signed and returned before May 1, 2010 (it is not sufficient for the quotation to be mailed), then the services performed after July 1, 2010 would be subject to HST.  A deposit is not considered to be consideration for the performance of a service. A deposit is treated as consideration for the supply at the moment in time that it is allocated to the supply. Also, the amount owing under the contract must be paid in full before May 1, 2010 to satisfy the HST transition rule.

Another unfortunate issue is the underground economy. Just because a person does not charge HST does not mean that they are bad and part of the underground economy. If a small supplier does not make taxable sales in excess of $30,000 per year, they are not required to register for GST/HST purposes and do not have to charge GST/HST. A business cannot get around the small supplier threshold of $30,000 by having more than one business - the threshold is calculated based on the related businesses. If a business does not register for GST/HST purposes, they will not be entitled to recover input tax credits regarding the GST/HST paid on business inputs.

My last point, and I really hate to bring this up when the Music Central news is trying hard to be helpful, highlights the problem with prepayments of deposits. When amounts are paid for services before they are delivered, it is possible that the services will not be provided. Is the risk of non-performance of services worth saving the 8% HST. I would rather have control over 100% the money for the services.

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The British Columbia Times Colonist newspaper is reporting that the New Democratic Party (NDP) in British Columbia is planning to use any means available to prevent the passage of Bill 9 - 2010 "The Consumption Tax Rebate and Transition Act" that was tabled in the British Columbia Legislature on March 30, 2010. That being said, the fist vote relating to the Bill passed 47 to 34 due to the number of seats held by Premier Campbell's Liberal Government. So, while the NDP's plans to stop the unpopular HST legislation should be welcomed by the electorate, they should not expect to be saved from HST.

The report indicates that the NDP leader, Carole James, plans to use legislature procedures to have a debate. The NDP plan to table amendments to Bill 9-2010 and take their allotted speaking time in the Legislature. The hope is at least a one month delay,

The Ontario Progressive Conservative Party, lead by Tim Hudak, tried unsuccessfully to delay the passage of the Ontario version of the HST legislation using similar legislative mechanisms.  However, Bill - 218  Ontario Plan for More Jobs and growth Act, 2009" passed in Ontario in December 9, 2009.

The unfortunate reality is that HST is going to be a reality soon - very soon.  The late passage of legislation in British Columbia will not help businesses prepare.  In fact, if the delay tactics successfully take a month or more, HST collection obligations may have already kicked in -- as of May 1, 2010.  Businesses must collect HST on supplies of property and/or services if:

(1) the contract is entered into after April 30, 2010

(2) the property and/or services are to be delivered after July 1, 2010, and

(3) consideration is paid after May 1, 2010

It is also unfortunate that the place of supply rules have been released in administrative statement format only (as of April 1, 2010).  The regulations have not been promulgated by the Federal Government.  As a result, as of April 1, 2010, businesses do not have sufficient information to ensure they are ready as of May 1, 2010 or even July 1, 2010.  Something that should be discussed is a period of leniency by the Canada Revenue Agency regarding enforcement.

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On March 30, 2010, the Government of British Columbia tabled Bill 9-2010, which is legislation to implement harmonized sales tax (HST) into B.C. law and wind down the British Columbia social services tax (BCSST) and hotel room tax. The HST implementing legislation is called the Consumption Tax Rebate and Transition Act. The Government of British Columbia also issue a press release at the time the Bill was tabled in the Legislature.

The HST rate for the province of British Columbia will be 12%. HST will come into effect on July 1, 2010.

The Consumption Tax Rebate and Transition Act eliminates the seven-per cent BCSST and introduces HST-related measures designed to mitigate the impacts of the HST on persons in British Columbia.

It is expected that the legislation will be passed in due course. This is a necessary step in the process.

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