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

I was at an event last night hosted by Women's Post and a woman entrepreneur in the audience who was in the events planning business in Ontario asked why harmonized sales tax (HST) was charged being charged on gratuities (she had noticed this since the implementation of HST).  She noticed that venues and caterers were quoting (1) the charge for the room and/or (2)  the food/beverages and (3) a mandatory gratuity and that HST was being charged on all charges, including the gratuity.

The answer is that the Canada Revenue Agency (CRA) considers the mandatory gratuity to be extra consideration for the supply (say, of the venue.food/beverages/etc) rather than a contribution towards the salary (non-taxable) of the employees that will be working the event. The CRA had taken this position with the goods and services tax (GST).  GST/HST is payable on the consideration for the supply and since the gratuity is considered by the CRA to be additional consideration, it goes into the calculation/formula.  As a result, the CRA takes the position that GST/HST is payable on the added consideration that is the gratuity portion.

I have seen the same analysis used by CRA when they look at gratuities paid on restaurant meals, resort vacation packages, hair salon services, spa services, etc - whenever there is a mandatory gratuity OR when the gratuity is included in credit card payment (that is the recipient pays adds a gratuity to a credit card payment).  For example, when I go to the hair salon, I pay by VISA.  Before I indicate my PIN number when I use my chip card, I am asked whether I wish to add a tip or gratuity and I usually add 15%-20% of the tax-excluded price for the services rendered.  The CRA when auditing such service providers/venues, adds the gratuity amounts to the consideration for the services and calculates the GST/HST owing.

Based on the cases I have seen, often the service provider does not charge the GST/HST on the gratuity portion and has to dip into their pockets to pay a substantial assessment.

The morale of the story is that when possible, recipients should give waitresses/waiters and service providers cash tips when they are adding an amount to the bill for the exceptions services performed by the individual to the recipient.  If the gratuities are in the invoices or in the credit card payments 13/113 of the amount in Ontario (12/112 in BC, 15/115 in NS, 113/113 in Nfld/Lab. and NB) will not go to the waitress/service provider and will be remitted to the Receiver General of Canada.  This is unfortunate because the individuals affected are making low hourly wages and rely on the gratuities as employment income (to make ends meet).

I have been involved in structuring the payments so that more money goes to the real people who work very hard for the additional employment income - it is possible if a business plans in advance of the CRA visit.

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A tax on a tax is called a "cascading tax".  Cascading taxes are common in today's world.  As a general rule, most new taxes and levies can result in cascading tax (HST charged on top of the new tax) unless the provincial government asks the federal cabinet to list the new tax in a regulation.

Goods and services tax (GST) and harmonized sales tax (if applicable) (HST) is calculated on the consideration payable for a supply of property or services.  Subsection 154(2) of the Excise Tax Act (Canada) provides that "the consideration for a supply of property or a service includes:

(a) any tax, duty or fee imposed under an Act of Parliament [that means federal laws] that is payable by the recipient or payable or collectible by the supplier, in respect of that supply or in respect of the production, importation, consumption or use of the property or service [other than GST/HST];

(b) any provincial levy [intended to cover provincial laws] that is payable by the recipient or payable or collectible by the supplier, in respect of that supply or in respect of the consumption or use of the property or service, other than a prescribed provincial levy that is payable by the recipient [that means it is in a regulation]; and

(c) any other amount that is collectible by the supplier under an Act of the legislature of any province and that is equal to, or is collectible on account of or in lieu of, a provincial levy, except where the amount is payable by the recipient and the provincial levy is a prescribed levy."

The term "provincial levy" is defined to mean "a tax, duty or fee imposed under an Act of the legislature of a province in respect of the supply, consumption or use of the property  or a service."  What is most significant about this definition is that unless the levy is imposed pursuant to an Act of the legislature of the province, GST/HST would not be payable on the tax-included price. It is always necessary to go to the source of the taxation/fee/levy.

The Taxes, Duties and Fees (GST/HST) Regulations contain a negative list of provincial levies that are excluded from the GST/HST calculation.  If the provincial law is not in the list, then the provincial levy is included in the price for the purposes of calculating GST/HST.

Ontario has a very short list including the following:

• the Land Transfer Tax Act, R.S.O. 1990, c. L.6,
• Chapter 760 of the City of Toronto Municipal Code, made under Part X of the City of Toronto Act, 2006, S.O. 2006, c. 11, Sched. A, if the tax, duty or fee would have applied to that transfer under that chapter as it read on February 1, 2008

The Taxes, Duties and Fees (GST/HST) Regulations also prescribe in the list "a tax imposed by the legislature of a province, under an Act referred to in the definition of "general sales tax rate", which includes subsection 2(1) of the Retail Sales Tax Act (Ontario). This exclusion is more complicated, but has been generally applied to exclude Ontario retail sales tax from the calculation of GST.

Now that Ontario has harmonized and is not using the Retail Sales Tax Act to impose taxes representing significant revenue, any new provincial levy may be included in the GST/HST calculation as it would not be listed by the Taxes, Duties and Fees (GST/HST) Regulations.  I say "may" because the other requirements in section 154 of the Excise Tax Act would have to be met. To be excluded from the GST/HST calculation, new taxes must fall within a listed Act in the manner it is identified or the provincial government must ask the Government of Canada (specifically federal cabinet) to change the regulation.

It seems as if in most situations, suppliers assume (and act as if) the tax/fee is included in the calculation of GST/HST because it is the safe thing to do.  However, questions are not asked if this is correct.   For every provincial levy or charge that we might be inclined to include for the purposes of calculating GST/HST, we must ask questions before including the fee in the calculation:

• Is the tax/fee imposed pursuant to a law of Canada?
• Is the tax/fee imposed pursuant to an Act of the legislature of a province?
• Is the tax/fee imposed by a regulation or a rule and there isn't a charging provision in an Act of the legislature (I an thinking carefully about the ecotaxes)?
• Is the tax/fee imposed under a municipal by-law?
• On what is the tax/fee imposed?
• Is a recipient of a supply responsible for paying the tax/fee under the law imposing the tax/fee?
• Is the supplier of the supply required to collect the tax/fee?

I have serious questions whether the Toronto plastic bag fee is subject to HST.  I have serious questions whether GST/HST should have been charged on top of the ecotaxes.  I have questions whether certain destination marketing fees are subject to GST/HST.  I think that consumers are paying GST/HST on top of many taxes and fees when the GST/HST laws do not require GST/HST to be charged.

The unfortunate reality is that the implementation of HST has incentivized Ontario and British Columbia to cause prices to increase so that they get more HST revenues.  It is in the interest of the government for retailers and suppliers to make mistakes and overcharge consumers.  It is no longer in the interest of Ontario and British Columbia to list new provincial levies in the Taxes, Duties and Fees (GST/HST) Regulations.  It is no longer in the interests of the leaders to keep prices down for consumers.

For this reason, it is more important than ever for businesses and retailers to understand the law and force the governments to follow the law.  It is more important than ever before that provincial levies are imposed in a transparent manner.  It is more important than ever for the people to make it known that there is a cascading tax and the government is accountable to them and needs to request the new tax to be listed.

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On July 23, 2010 - TOMORROW - Is the day the last regular Ontario retail sales tax (RST) returns are due.  Are you a vendor?  Have you added up all the RST you collected in the period before July 1, 2010?  Is your RST return ready to be filed?  Have you written that last RST cheque?  How are you going to celebrate?

Vendors must file their final RST return for reporting periods ending on or after June 30, 2010.  The final RST return should be filed with the Ministry of Revenue on or before July 23, 2010.  Some vendors may be required to file a supplemental RST return on or before the 23rd day of the following month. The final supplemental RST returns are to be filed by November 23, 2010.

Harmonized Sales Tax - Tax Tip 13 (June 2010) "Prepare for Ontario's HST: Final, Supplemental and Amended Retail Sales Tax Returns" provides more information on what you should do.

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I am a big fan of anticipating a problem during a Canada Revenue Agency audit and solving the problem before it happens.  File opening forms may provide useful information to a CRA auditor.  The first thing they do is they inform the CRA auditor that you are diligent.  You took your GST/HST compliance responsibilities seriously.  You tried to ask the right questions in order to bill correctly.

A file opening form can be useful in recording the information that will allow you to determine whether the harmonized sales tax (HST) place of supply rules apply and at what rate you should be charging HST.

There isn't a single form that will work for all businesses - in other words, you would be wise to work with an HST lawyer or expert to develop the form and learn how to analyze the information on the form in a diligent manner.  If you have a billing policy, then you are more likely to get the answer right.

Some of the information that may be included on a file opening form (and I want to make it clear that this is not an all inclusive list) is:

1. Date
2. The correct legal name of the client/customer
3. If the client is incorporated, the jurisdiction of the corporation and the incorporation number
4. If the client is a partnership, the jurisdiction of the partnership and the partnership registration number
5. The head office address or the address at which the individuals are located who provide instructions to you
6. Name of the prime contact who will be giving instructions
7. The normal location of that person
8. Telephone number of the prime contact
9. Fax number of the prime contact
10. Email address of the prime contact
11. If different than 6, the name of the person who hired you
12. If different than 7, the normal location of the person who hired you
13. If different than 8, the telephone number of the person who hired you
14. Will you be providing (a) goods, (b) services, (c) real property, (4) intangible property, or (e) other
15. A short statement of the proposed work
16. If you are selling goods, the address to which goods will be shipped
17. If you are providing services in respect of real property, the address at which you will be providing the services or the location of real property at issue
18. Your client's/customer's GST/HST registration number

We would be willing to create a special file opening form for your business (for a fee to be determined based on the work involved - e.g., simple business would be $250 plus all applicable taxes).  We will ask more detailed questions about your business and add prompts for information that you will need to apply the HST place of supply rules (and ward away assessments).  We will teach you how to read the information so that you can charge the right amount of HST given your unique circumstances.  To prepare upfront, at the time of file opening, will in all likelihood be less expensive than a CRA assessment.

For more information, please contact me at 416-760-8999.  I am a Canadian sales tax lawyer.

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Many businesses are conducting tests to determine whether they are recording their input tax credits properly.  In particular, they are verifying that when they pay harmonized sales tax (HST), the HST is recorded properly in their computerize records so that when they file their first GST/HST return for the reporting period that includes July 1, 2010, they include the HST paid on purchased supplies.

When a business files a GST/HST return, they should include in the input tax credit line all GST and HST paid or payable.  Even though some input tax credits of large businesses are subject to recaptured ITC rules (which will not be addressed in this post), they must claim the full amount in the ITC line and NOT undertake an offset calculation.  For the purposes of the example below, I am assuming the business is located in Ontario:

While there would be many other entries in a typical business, in the above example, the ITC to be claimed is $11,895.  As previously mentioned, if the business is subject to the recaptured ITC rules, that calculation does not affect the ITCs claim line and is addressed/calculated elsewhere.

A GST/HST registrant has a prescribed period of time (often 4 years) in which to claim input tax credits.

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The GST rules (now the HST rules) have historically allowed a supplier (seller) of taxable real property to make a supply to a recipient (purchaser) and not collect GST/HST in respect of the real property if the purchaser is registered for GST/HST purposes and provides a written certification of registration status.  The relevant sections of the Excise Tax Act are subsections 123(1), 221(2) and 228(4).

What happens in these real property transactions is that the purchaser provides the seller a certification at closing and the supplier verifies the purchasers GST/HST registration number with the Canada Revenue Agency (as a due diligence step).  If the certification is verified by the Canada Revenue Agency, the seller does not collect GST/HST from the purchaser at the time of the closing/transfer and the purchaser self-assesses GST/HST on its GST/HST return for the period in which the transaction took place.  On the GST/HST return, the purchaser indicates the amount of GST/HST he/she/it is self-assessing and takes an input tax credit  on the same return to neutralize the cash flow effect. The purchaser also files a GST Form 60 with its GST/HST return.

These certifications are not a prescribed form (that is the CRA has not developed a form to complete) and many lawyers and real property businesses have developed a precedent that they use.  These precedent certifications need to be updated to account for HST.

I would recommend that the new certifications include the following information:

1. The Recipient's (buyer's) correct legal name;
2. The Recipient's GST/HST number;
3. The Recipient's reporting period (not necessary, but helpful to diarize self-assessment deadline);
4. The Recipient's mailing address in the Canada Revenue Agency's records (I have needed this in the past to verify items 1 and 2);
5. The municipal address of the real property (in order to make HST place of supply determination at the time f the self assessment)
6. The transfer value of the real property; and
7. The rate of HST applicable (based on 5 and 6).

The Registrant Real Property Certification should make reference to both GST and HST on a going forward basis so as not to confuse the auditor who wants to raise a big assessment against the parties.

We have prepared such precedent certificates for transactions and will be willing to sell a precedent for a flat rate of $100 (the cost of which can be recoverable).

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I am giving a webinar on July 21, 2010 at noon (EST) organized and hosted by the Association of Registered Graphic Designers - Ontario.  Members and non-members are permitted to register for the webinar.  I will spend time looking at the harmonized sales tax (HST) place of supply rules applicable to various types of graphic designers. I will also talk about things you can do to improve compliance with HST rules.  If you would like to register, please go here.

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Over the last few days, I have been quoted in the media discussing Ontario's other July 1, 2010 tax reform, being the ecotaxes stated by the McGuinty Government to have been imposed by stewards under the Waste Diversion Act, 2002.  I have questioned whether the ecotaxes as implemented are unconstitutional and inconsistent with the provisions of the Waste Diversion Act, 2002 and the regulations thereto.

The two articles are:

1) Eco fee sham, Toronto Sun, by Antonella Artuso

2) Eco fee comes under fire, Toronto Sun, by Antonella Artuso

In addition, I appeared on the John Oakley radio show, CFRA Ottawa and the Motts Radio Show.

I will continue to question the ecotaxes and strongly believe that the surprise ecotaxes raise serious questions.  Taxation by government should be transparent and the government must be accountable to the people being taxed.  Government leaders should be honest with the electorate. Government leaders should show the electorate respect and not act as if "ignorant masses are compliant masses".  This is not appropriate behaviour in a democratic society. If we do not answer the questions about the legality of the ecotaxes, secret taxation will continue and become more prevalent as governments find new and innovative ways to raise revenues in order to maintain uncontrolled levels of spending.

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I have been asked many times over the last few days about reporting of harmonized sales tax (HST) on GST/HST returns.  One question was posed by a retailer who sells paintings across Canada.  He said that in the month of July (so far) he has sold paintings (and delivered the paintings in Ontario, British Columbia and Nova Scotia.  He has asked how he must report the GST/HST to the Canada Revenue Agency (CRA) on his GST/HST return.

My response is that he must add all the GST and HST together and report the combined amount on a single line of his GST/HST return.  I will give an example to help explain:

This is an example that I have made up and does not use the numbers I have been given by any person.  Let's assume we are already at the end of July for the purposes of my example.  The painter sold the following paintings, to the following destinations, and has collected the following amounts of GST and HST:

The amount of GST/HST that must be reported on a single line on the painter's GST/HST return will be $8,100.  For reporting purposes, it will make no difference how many sales were made in each HST province.  The total combined GST/HST is reported on as a single number.  Believe it or not (agree or not), the governments thought that this approach would be easier and a basis for selling the HST to businesses as a simple tax.

Many ask at this point how each province gets their respective HST.  The payments to provinces go into a big pot of money and are allocated according to complicated formulas in the Comprehensive Integrated Tax Coordination Agreements (CITCAs)  I will not bore you with the details.

One final point is that the supplier's records must be auditable.  The CRA auditor will know the combined total and will ask how that number was determined.  The details remain relevant and suppliers should keep records that are easy for the auditors (and then the audits are less painful for the suppliers).

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I have been asked many times over the last few days questions about the HST place of supply rules for goods. 

• Does a retailer in Alberta have to charge HST (Ontario rate) on goods sold to a Ontario resident?

Answer: Yes

• Does a wholesaler in Ontario have to charge HST (Ontario) on goods shipped to Quebec?

Answer: No

The HST place of supply rules for goods is:  HST is applicable to tangible personal property (goods) if the goods are delivered by the supplier (seller) to the recipient (buyer) in an HST province.

For the purposes of the HST place of supply rules for goods, property (a good) is deemed to be delivered in a particular province (e.g., Ontario) by a supplier (seller) and is deemed not to be delivered in any other province by the supplier (seller) if the supplier (seller):

(a) ships the property to a destination in the particular province (e.g. Ontario) that is specified in the contract for carriage of the property or transfers possession of the property to a common carrier or consignee that the supplier has retained on behalf of the recipient (buyer) to ship the property to such destination; or

(b) sends the property (good) by mail or courier to an address in the particular province (e.g., Ontario).

This means that:

• If an individual comes into a retail store in Ontario and purchases a widget and the retailer gives the widget to the buyer in the store, GST/HST is payable at the combined rate of 13%.
• If an individual goes into a store in British Columbia and buys a coat and asks the retailer to ship the coat to Ontario, GST/HST is payable at the combined rate of 13%.
• If an individual goes into a store in British Columbia and buys a coat and takes the coat with him/her, GST/HST is payable at the combined rate of 12%.
• If an person buys a painting from an artist in Alberta and has the painter ship the painting to Nova Scotia, GST/HST is payable at the rate of 15%.
• If an Ontario based wholesales/distributor sells goods to a retailer in Quebec and ships the goods to Quebec, GST is payable at the rate of 5%.
• If an Ontario based wholesales/distributor sells goods to a retailer in Quebec and the retailer sends his own truck to pick up the goods, GST/HST is payable at the rate of 13% because the goods were delivered on Ontario and could be given to another person in Ontario.

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I went to the video store on the week-end and rented "Alice in Wonderland".  I will not critique the movie and I will not tell you what video rental store I went to.  I will tell you that the invoice showed that the rental price was $5.00 and GST was charged in the amount of $0.65. Technically this is incorrect and the Canada Revenue Agency may take issue with the invoice (if I was claiming and input tax credit, which I am not).

This HST story causes me to remind suppliers that how they communicate information on invoices is important.  The invoice I received should have said GST/HST and should have indicated the rate of tax charged.

Why? You do not want to confuse an auditor do you?  we all may be able to figure out that HST at the rate of 13% was charged - BUT the invoice did not communicate that properly.  If this was a board game (as life sometimes is), something bad would happen.  most likely, I would lose money.

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I have been asked many times in the last week (primarily by businesses that sell goods and deliver the goods across Canada) for the Canadian/provincial sales tax rates. Here they are:

Notes that may help:

• British Columbia – 12% HST (5% federal component and 7% provincial component)
• Ontario – 13% HST (5% federal component and 8% provincial component)
• New Brunswick and Newfoundland – 13% HST (5% federal component and 8% provincial component)
• Nova Scotia – 15% HST (5% federal component and 10% provincial component)
• Quebec – QST rate will rise to 8.5% on January 1, 2011 and to 9.5% on January 1, 2012

Comments:

1. It is important to note that the tax rates can change (often in the Spring at the time budgets are tabled).

2. If a supplier is registered for GST purposes, they will have to charge (1) GST in respect of taxable sales in Canada and (2) HST at the applicable HST rate if the HST place of supply rules deem a supply to be made in a participating province.

3. The rules may be different on when a vendor must register for provincial sales tax purposes (in Quebec, Prince Edward island, Manitoba or Saskatchewan) and charge provincial sales tax on a sale of goods in a province or on services in respect of tangible personal property.

NOTE: I acknowledge that assistance of Allan Gelkopf in the preparation of this piece.  I wrote an article on The HST Blog and Allan and I modified the article for publication by the Canadian Bar Associaiton, National Sales Tax, Customs and Trade Section in the newsletter.  I have modified it again for this post.
 

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On July 5, 2010, an group led by Bill Vander Zalm filed a judicial review with the Supreme Court of British Columbia to challenge the Liberal Government's actions to implement the HST.  The two main orders sought are:

1. An order in the nature of certiorari quashing the Order of the Lieutenant Governor in Council No. 661, dated November 30, 2009, and approval given therein to the Minister of Finance to enter into the Comprehensive Integrated Tax Coordination Agreement with the Government of Canada; and

2. A declaration that the Comprehensive Integrated Tax Coordination Agreement between the Government of Canada and the Government of British Columbia dated November 30, 2009 is of no force or effect and a nullity.

In simple terms, the orders, if granted by the Supreme Court of British Columbia, would undo/remove certain procedural steps that have led to the HST implementation and could cause all HST house of cards to fall.

I have read a copy of the Petition to the Court and find that it raises serious procedural issues.  The most interesting points are raised in paragraphs 10-11, 16 & 18 of the Petition:

10. On November 30, 2009, the Lieutenant Governor in Council, by Order in Council 691 made pursuant to s. 4 of the Ministry of Intergovernmental Relations Act, R.S.B.C. 1996, c. 303, purported to give authority to the Minister of Finance to enter into the Comprehensive Integrated Tax Coordination Agreement with the Government of Canada (the "CITC Agreement").

11. In the CITC Agreement, the Government of British Columbia agreed, subject to the requisite legislative approvals, to the imposition and implementation of PVAT in British Columbia.  The CITC Agreement purports to authorize the Government of Canada to introduce the necessary legislative amendments to include British Columbia as a participating province under Part IX of the Excise Tax Act. The parties agreed that the PVAT would be implemented in British Columbia on July 1, 2010.

16. The British Columbia Legislature did not purport, in the Consumption tax Rebate and transition Act, to ratify the CITC Agreement, authorize the Minister of Finance to enter into the CITC Agreement or otherwise approve the PVAT for British Columbia.

18. The British Columbia has not ratified the British Columbia CITC Agreement.

In simple terms, the B.C. Liberal Government did not take the formal procedural steps required to approve the cornerstone CITC Agreement. 

In addition, the B.C. Liberal Government did not that the legally and constitutionally required steps. Part 3 of the Petition sets out the laws that were not followed.  This is the part of the case that will be fascinating for legal historians and constitutional law observers.  The case will look into the well known principle of law associated with the Boston Tea Party  - "No taxation without representation".

What is argued to be a fatal flaw of the HST implementation in British Columbia is "[t]he CITC Agreement did not originate in the [B.C.] Legislature, and has not been ratified or approved by the Legislature..."  Taxation of the people was not done properly.

The questions raised in the Petition are important ones for the people of British Columbia and businesses.  While businesses may be concerned that Mr. Vander Zalm may be correct and their input tax credits may be taken away, my humble view is that the case has been brought quickly and the answer will be provided relatively quickly [even though Mr. Joseph Arvay, Q.C. has voiced hope that the case will be head by August 1, 2010, judicial proceedings take time and appeals lengthen the process].  Businesses will be better off if the judicial review decision is quick - rather than having the issue raised and determined 10 years from now after a large assessment of a single taxpayer.  If 10 years of tax collection and filing GST/HST returns is reversed 10 years from now, the retroactive uncertainty and ramifications will be worse for businesses.

The implementation of HST in British Columbia is major tax reform that was rushed to meet the July 1, 2010 date.  If the Mr. Vander Zalm is correct (and I think he is raising very important points and he is knowledgeable in government procedures), he is doing the right thing for the citizens of British Columbia by asking for a judicial review of the government's procedural steps and constitutional and legal authority to implement the HST. 

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More actors and actresses are concerned that Ontario's and British Columbia's decisions to implement harmonized sales tax (HST) will affect them --- and they should be concerned.  If they do not consider the issue of HST, the cost may be 13% of the contract in Ontario or 12% in British Columbia.  Since an actor/actress may make millions of dollars filming a movie in Canada, we are not talking about small numbers.

Subsection 143(1) of the Excise Tax Act (Canada) provides that:

For the purposes of this Part, a supply of personal property or a service made in Canada by a non-resident person shall be deemed to be made outside Canada, unless
(a) the supply is made in the course of a business carried on in Canada;
(b) at the time the supply is made, the person is registered under Subdivision d of Division V; or
(c) the supply is the supply of an admission in respect of a place of amusement, a seminar, an activity or an event where the non-resident person did not acquire the admission from another person.

If this provision applies, then an actor/actress would not have to register for GST/HST purposes and would not have to charge collect and remit GST/HST on their services performed in Canada.

On the other hand, subsection 240(1) of the Excise Tax Act (Canada) is the provision relating to registration and provides that:

"Every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered for the purposes of this Part, except where
(a) the person is a small supplier;
(b) the only commercial activity of the person is the making of supplies of real property by way of sale otherwise than in the course of a business; or
(c) the person is a non-resident person who does not carry on any business in Canada."

If a person must register for GST/HST purposes, they must charge, collect and remit GST/HST (if applicable) in respect of services performed in Canada (and a participating province).

Assuming that the actor/actress is a non-resident of Canada, the key question is whether they are "carrying on business" in Canada.  There is no definition of "carrying on business in Canada" in the Excise Tax Act.  As a result, whether a particular actor/actress is carrying on business in Canada will depend on the specific facts.  There are many factors specific to the work/life of the actor/actress, their background and their activities in a year that may cause the Canada Revenue Agency (Canada's IRS) (the "CRA) to conclude he/she is carrying on business in Canada as opposed to carrying on business outside Canada and visiting Canada (briefly) in connection with that outside business.

The CRA has issued a policy statement concerning the factors they consider when determining whether a person is carrying on business in Canada --- but none of the examples relates to actors/actresses. Policy Statement P-051R "Carrying on Business in Canada" was last updated in 2005.

It is important to note that getting GST/HST correct may mean that the actor/actress (or their production company) would charge GST/HST on the portion of their services performed in Canada and the payor would recover that GST/HST by way of an input tax credit.  If they do not ask the question, it may result in auditors, assessments and a bad & costly experience.

It is important to note that the GST/HST test is not connected to a permanent establishment in Canada like the Canada-United States Income Tax Treaty. In other words, an individual may not have to pay Canadian income tax and may be entitled to register for GST/HST purposes and charge GST/HST on a contract for services.

Canadian commodity tax lawyers can help apply the CRA's "carrying on business" test and provide opinions that are subject to solicitor-client privilege.

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Many businesses may be entitled to a refund of Ontario retails tax (ORST) paid in respect of goods and/or "taxable services" paid for before July 1, 2010 where the goods and/or "taxable services" are provided after July 1, 2010. 

The best examples I can give are annual subscriptions/licenses of computer software and leases of goods (however, there are other situations).  Please review your invoices to see if you paid an annual or other periodic amount of ORST before July 1, 2010 and set aside those invoices that relate, in part, to the period after July 1, 2010.

As a matter of law, it may be that the Canada Revenue Agency expects to receive harmonized sales tax (HST) for the portion o the supply that occurs after July 1, 2010. The HST transition rules may require an allocation between the pre-HST period and the post-HST period.  It also may be that as a matter of law, you were required to pay ORST on the full invoice at the time it was paid and things changed. You may entitled to receive a refund of ORST paid pre-HST in respect of the post-HST period.  I know that this may sound silly, but tax changes sometimes have silly effects/results.

I have reviewed the Canada Revenue Agency web-site for some guidance on this issue and have found nothing (so far).  I have also reviewed the Ontario Ministry of Revenue web-site for some guidance on this issue and have found nothing (so far).  It is for this reason that I am saying that the HST may be a source of confusion, like tax free savings accounts.  It would be helpful for businesses to be told clearly what is expected of them.

I will give an example in order to clarify: 

For example, some businesses and MUSH sector entities may an annual license for computer software in May 2010 and paid Ontario retail sales tax in addition to GST and the lump sum annual lease price.  In this example, computer software was licensed for a year for $120,000 and GST would have been $6000 and ORST would have been $9600. However, the ORST portion would be in respect of software that could be used post HST and, therefore, the purchaser must pay HST is respect of the period after June 30, 2010.  10 of 12 months would be subject to HST instead of ORST.  As a result, the purchaser would have to self-assess and remit HST on $100,000 = $8,000.  The business would be entitled to a refund of ORST from the Ministry of Revenue in the amount of $8000.

The self-assessment would occur on the GST/HST return for the first reporting period after July 1, 2010.  There is a line on the GST/HST return for self-assessed GST/HST.

The refund application would not be filed with the CRA, but, rather would be filed with the Ontario Ministry of Revenue. Here is the general refund application form - it is difficult to find on the Ontario Ministry of Revenue web-site.

This may sound silly - robbing Peter in order to pay Peter (and Paul). Some businesses for some purchases may pay both HST and ORST and will have to wait to get the ORST back.  These same businesses have audit risk under both the ORST and HST tax regimes.  The business has paid the correct amount of tax initially and then has a problem and can be assessed for failing to ensuring the tax was paid to the right person. 

You will not be able to say that ultimately Ontario received its money because technically under the HST regime, the HST goes into a pot of money and that money is allocated according to formulas, which are not based on the place of supply.  The formulas do not allow for a matching of HST to a particular province.

In a more perfect tax system, there would be a joint CRA and Ontario Ministry of Finance form that would allow a business to identify payments of ORST in the pre-HST period that cover the post-HST period.  In a more perfect tax system, the governments would ask for a copy of the invoice and make the corrections for you.  In a more perfect tax system the governments would waive interest and penalties when there is not intention to underpay sales taxes.  It should be easy for businesses to comply with sales tax laws, but sometimes it is not simple or easy.

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Today is July 1, 2010 and Ontario and British Columbia have implemented the harmonized sales tax. Nova Scotia has raised their HSt rate from 13% to 15%.  The HST will cost consumers more. 

Businesses that are engaged in "commercial activities" and are registered for GST/HST purposes will recover GST/HST paid in connection with the business (with the exception of items that are subject to the recaptured ITC rules).  Another important exception is that ITCs will be denied by the CRA if you do not maintain or receive the proper documentation or information from suppliers.

I will continue to blog about these important issues. Today, I am going to give the links to a number of articles/opinions written about the implementation of HST:

• HST’s Canada Day gift? Higher gas prices
• Fear and loathing of HST
• The 13 per cent harmonized sales tax has arrived
•  HST raises prices ion Ontario, BC
• Canada Day gift in Ontario and B.C.: a new tax
• The HST is Here
• Oh crap! They're charging HST on fireworks!
• Gas stations get fill of HST gripes
  Consumers express their anger at the pumps
• B.C. restaurants brace for HST effects
• Windsor Star Editorial: HST Blues
  The debate isn't over yet
• Canadians wrestle with new tax structure
• HST guidelines perplex grocers and consumers
• B.C. grocers baffled by HST

Please send us additonal links to articles.opinions.

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July 1, 2010 is the start of my diet.  I am going to make a positive out of the harmonized sales tax (HST).  In order to fund my HST liabilities,  I am going on a diet.  While I am not particularly overweight, i could lose a few pounds. 

I will not buy lunches in downtown Toronto food courts.  If the average lunch costs me $10.00, I should save $1000 per year at least and can use that money to pay for gas, electricity for my home, home heating fuel, food (on which HST will be payable), supplements (on which HST will be payable), landscaping, and other necessities.

I know that prepared meals under $4.00 will be he subject of a point of sale exemption - but, it is better for me to go on a diet than eat pizza and cheeseburgers for lunch. Why is the unhealthy food exempted?

I will also go to the hair salon 3 fewer times a year and will stretch out the time between visits. This will save me another $700 (my person is expensive).

I will reduce the number of manicures and massages so that I can pay for my travel within Ontario. 

I will try to use telecommunications more and travel to the Ottawa office less. This should save me at least $1000 in Porter and Air Canada flights.  I have already tried this.  "Go To Meeting" is very good.

As a consumer, I can make this work.  If others do not adopt similar changes to buying patters, then businesses will not be hurt.  If others do change their spending patterns, HST will be a business killer.

What do you plan to give up in order to save HST?

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