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

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Is it a coincidence that today I had a discussion with an accountant who asked about whether a client must start charging GST and HST on July 1, 2010 (or starting on May 1, 2010 if the transition rules apply) and the Ontario Government comes out with Tax Information Notice 6 "HST Notice for Suppliers of Taxable Property and Services to the Ontario Government"?  Probably it was a coincidence.

Tax Information Notice 6 states:

Under the sales tax harmonization agreement between the Government of Ontario and the Government of Canada, the Canada-Ontario Comprehensive Integrated Tax Coordination Agreement (CITCA), Ontario has agreed that, effective July 1, 2010, all Ontario government ministries, agencies, boards, commissions and Crown corporations ("Ontario government entities") will pay Goods and Services Tax (GST) / Harmonized Sales Tax (HST) on their purchases of taxable property and services. Property could be goods, real property or intangible personal property such as trademarks, rights to use a patent, and digitized products downloaded from the Internet.

What this means is that existing contracts where suppliers do not charge goods and services tax (GST) and/or Ontario retail sales tax (ORST) may be subject to GST and HST after May 1, 2010.  It used to be that Ontario Government ministries, departments and crown corporations told suppliers that they are GST-exempt.  This was not the correct term: the Ontario Government ministries, departments and crown corporations were not exempt under a provision of the GST legislation (a.k.a, the Excise Tax Act (Canada)).  The correct term is that the supplies were not taxable (but were not in the non-taxable importations schedule to the GST Legislation).  In simple terms, the federal government could not request that the provincial government pay tax and entered into a reciprocal taxation agreement.

Tax Information Notice 6 goes on to state:

Ontario government entities that are currently paying GST, as well as those that are currently claiming an exemption from GST (i.e., ministries and other provincial entities listed on Schedule A of the current Canada-Ontario Reciprocal Taxation Agreement (RTA) – see Appendix for list of entities, will pay GST/HST on their purchases of taxable property and services effective July 1, 2010. (Emphasis added)

Suppliers to the Ontario Government need to revisit existing contracts and change their invoicing and record keeping.  More importantly, the suppliers may need to educate their Ontario Government clietns/customers that they need to pay GST and HST. Information Notice 6 contains a warning not to be fooled by Ontario Government clients/customers:

Accordingly, suppliers must generally charge and collect GST/HST on any consideration that becomes due on or after July 1, 2010 in respect of a taxable supply to an Ontario government entity. In these cases, suppliers should not rely on or accept any Crown funds exemption requests or certifications requesting GST/HST relief at the point-of-sale.

Can you imagine the conversation between suppliers and their Ontario Government customers/clients where the Ontario Government customers/clients say they do not have to pay the GST/HST and the supplier must "respectfully disagree"?

I have to warn you about the May 1, 2010 - June 30, 2010 period.  The Ontario Government is telling suppliers in Information Notice 6 that if they currently have to pay GST (because they are not in Appendix A), they have to continue to pay GST.  If they currently are not required to pay GST (because the client/customer is listed in Appendix A), they do not have to pay GST during the May 1, 2010 to June 30, 2010 transition period (but will after July 1, 2010).  If they have to pay HST during the May 1, 2010 to June 30, 2010 transition period (and Appendix A does not apply when one talks about OHST), they must pay such OHST. Thanks for clearing up that up! 

Some suppliers who are not currently registered for GST purposes (because they only make non-taxable supplies to the Ontario Government) will have to get registered for GST/HST purposes.  Some suppliers who are not collecting and GST will have to adjust their record keeping to charge GST and HST on invoices and record such collections in their accounting records.  In addition, such businesses who have not been claiming input tax credits will need to record input tax credits in accounting records in connection with purchases.  Large businesses may be affected by the restricted input tax credits rules and cannot claim all OHST paid on business inputs. Some suppliers will need to file GST/HST returns electronically and be in a position to retrieve information from accounting records with respect to GST/HST collected, GST/HST invoiced and collectible, and input tax credits on purchased inputs. There is a lot more suppliers to the Ontario Government need to do to prepare for HST.

One last word of warning is that suppliers to the Ontario Government should prepare to be audited after implementation of HST.  They will be "low hanging fruit" for Canada Revenue Agency auditor as some will be making mistakes.  These changes are big changes.