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

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

On May 14, 2010, the Ontario Government released Ontario Tax Tip 7 "Prepare for Ontario's HST: Small Business Transition Support" in which Ontario discusses a payment small business would receive to offset costs of modifying systems in order to transition to harmonized sales tax (HST).  Ontario Tax Tip 7 is intended to help small businesses understand if they are eligible for a small business transition support payment and explain how the support payment will be delivered to them. This support payment has been commonly referred to as the “Small Business Transition Credit”.

In order to qualify for a transition support payment, an eligible business must:

• not be a listed financial institution under the Excise Tax Act (Canada);
• carry on business in Ontario and be a GST/HST registrant on July 1, 2010;
• make GST/HST taxable supplies (including zero-rated supplies) in the course of carrying on business;  and
• have taxable annual revenues of less than $2 million (as announced in the 2010 Ontario Budget, the province will prescribe the 12-month period for calculating the $2 million taxable revenue threshold for purposes of the transition support payment).

If a small business for the transitional support payment, the amount the business will receive will be based on the following:

How is the Ontario Government going to program the computers to identify sole proprietorships and partnerships (joint ventures) and other businesses that are not separate legal entities?  There are many forms of small businesses that are not Ontario incorporated entities.  There are many forms of business that do not file separate tax returns.  A sole proprietor would report business income on his/her personal income tax return.  A partnership is not a legal entity for income tax purposes and the partners report business income and business losses on their respective income tax returns. 

Will the Canada Revenue Agency look at both income tax returns and GST/HST returns?  If the CRA is going to look at GST/HST returns, how will the annual filers be found and their quarterly sales revenues determined?

Are branches of foreign companies going to be treated differently than Ontario corporations?  If so, this approach would not encourage foreign direct investment to Ontario.

Are municipalities, schools, school boards, hospitals and other MUSH sector entities entitled to receive the small business transition credit if their taxable sales fall within the thresholds?

What is the Ontario Government going to do to prevent abuse?  What if a person registered 1000 corporations in June 2010?  Would they receive $30,000 from the Ontario Government even if each reported revenues of $10?

There are a number of questions that need to be answered so that all small businesses are recognized.  Equally as important, questions need to be asked so that cheques are not blindly written to HST-abuse vehicles.

Small businesses will need the financial assistance because it will cost more than $300-$1000 to implement the necessary changes correctly.  The problem is that there are problems with the mechanism.

Finally, I should mention that the small business support is taxable for income tax purposes.  The Department of Finance confirmed this today at the Southern Ontario Commodity Tax Group Meeting at the Toronto Board of Trade.