Effective Communication Will Be The Key To A Successful HST Compliance Program
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.
Cyndee Todgham Cherniak is counsel to and in affiliation with the International Trade Law and the Tax Law (Commodity Tax
