Canada Proposes To Exempt Hospital Parking Fees From GST/HST

On January 24, 2014, Canada's Department of Finance released legislative proposals and explanatory notes relating to the Excise Tax Act (Canada) (the "HST legislation") that would exempt hospital parking fees paid by patients and visitors from goods and services tax (GST) / harmonized sales tax (HST). Comments on the legislative proposals may be submitted until February 24, 2014.

This is welcome news because patients and visitors to hospitals have more important issues to worry about. This is a compassionate decision by the Government of Canada to not impose GST/HST on parking fees paid by patients and visitors.

The question for the consultations is whether there are unforeseen consequences of this proposal.  Would making hospital parking exempt create an undue administrative burden for parking lot operators due to the inability to claim input tax credits?  Is there a better solution - Should hospital parking be zero-rated?

The Cost of Paid Parking in a PSB Lot Just Became More Expensive In Canada

The 2013 Federal Budget in Canada closed a perceived loophole in respect of GST/HST on parking in a PSB lot.  PSB stands for "public service body" and covers municipalities, governments, universities, public colleges, school authorities, hospital authorities, charities and non-profit organizations (also known as the MUSH sector).

Many of these PSBs offer parking to the public. Anyone who visits a sick child or family/friends in the hospital knows that a hospital offers parking (and it is quite expensive). Many PSBs have structured their offering of paid parking such that they do not remit GST/HST from the amounts collected for such parking. This paid parking was treated as exempt for GST/HST purposes.

The 2013 Federal Budget attempts to even the playing field between commercial paid parking lots (GST/HST taxable) and PSB parking lots (often treated as GST/HST exempt). The 2013 Budget proposal for parking includes the following rules:

Rule 1: If a PSB offers paid parking on a regular basis, it will be subject to GST/HST;

Rule 2: Notwithstanding Rule 1, if a charity (that is not a municipality, university, public college, school or hospital authority) offers parking, it may still be exempt;

Rule 3: If a charity that is also a municipality, university, public college, school or hospital authority, offers paid parking to the public that is supplied by the charity for the municipality, university, public college, school or hospital authority, the paid parking will be subject to GST/HST; and

4) If a PSB offers property and services free of charge or if 90% or more of their supplies are made free of charge, then occasional paid parking (e.g., a special event parking) will not be subject to GST/HST.

There are 2 implementation dates for the new rules.  Paid parking will be subject to GST/HST with respect to supplies made after March 21, 2013. However, Rules 2, 3 and 4 may be applied retroactively to the implementation of GST and/or implementation of HST in a participating province (subject to statutory limitation periods). In other words, the CRA may retroactively assess PSBs in respect to their supplies of paid parking in certain cases.

These changes have been developed by the CRA to close a perceived loophole in the legislation.  The Department of Finance has included the proposed amendments in the 2013 Ways & Means that accompany the 2013 Budget.  There are paid parking suppliers that the CRA is targeting with the proposed retroactive amendments.  Regardless of whether a particular PSB is being targeted, they must quickly restructure their parking related activities because the effective date.

MUSH Sector Rebate Rates (As at April 1, 2013)

A registrant/non-registrant for GST/HST purposes which makes exempt supplies will not be entitled to claim input tax credits (unless the entity also makes taxable supplies). Some entities are not entitled to claim any rebates of the GST/HST paid on business inputs.  The MUSH sector may or may not be entitled to claim a rebate depending on the province in which the entity is located.

I have promised to share my MUSH sector rebate chart.This chart highlights many important problems for the MUSH sector. 

MUSH 

Sector Entities

GST Portion 

Rebate

HST Portion Rebate - Ontario

HST Portion Rebate - Quebec

HST Portion Rebate - BC

HST Portion Rebate - NS

HST Portion Rebate - NB

HST Portion Rebate - Nfld

HST Portion Rebate - PEI

Municipalities

100%

78%

 

0%

0%

57.14%

57.14%

No rebate

No rebate

Hospitals

83%

87%

51.5%

0%

83%

No rebate

No rebate

No rebate

Facility Operators

83%

87%

51.5%

0%

50%

50%

No rebate

No rebate

School Authorities

68%

93%

47%

0%

68%

No rebate

No rebate

No rebate

Universities & Public Colleges

67%

78%

 

47%

0%

67%

No rebate

No rebate

No rebate

Charities

50%

82%

50%

0%

50%

50%

50%

35%

Qualifying Not-for-Profits

50%

82%

 

50%

0%

50%

50%

50%

 

35%

1. The lack of significant rebates for hospitals in Prince Edward Island, Newfoundland/Labrador and New Brunswick will put a strain on provincial budgets due to the unrecoverable health care costs.

2. The lack of significant rebates for school authorities and universities and colleges in Prince Edward Island, Newfoundland/Labrador and New Brunswick will put a strain on provincial budgets due to the unrecoverable education costs.

3. Nova Scotia was able to relieve some of its budget pressures when it signed a CITCA.

4, British Columbia has de-harmonized and for that reason the provincial portion is shown as 0%.

5. For Ontario, the effective unrecoverable GST/HST rates (what the entity will not be able to recover by way of a rebate) in respect of purchases for use in exempt activities are:

MUSH Sector Entity Effective GST/HST Rate after Rebate
Municipalities 1.76%
Hospitals 1.89%
School Authorities 2.16%
Universities and Colleges 3.41%
Charities 3.94%
Qualifying Not-For-Profits 3.94%

 

Micro Feed-In Tariff Program in Ontario and HST: The CRA Clarifies Their Position

Last Week, the Canada Revenue Agency ("CRA") released GST/HST Info Sheet GI-122 "The GST/HST Implications of the Acquisition of Solar Panels Under the micro Feed-In Tariff Program in Ontario" to clarify when a person must register for GST/HST purposes and when input tax credits ("ITCS") will be allowed.  The new Info Sheet follows a period of uncertainty during which auditors would not allow ITC claims (and auditors questioned whether homeowners in the Micro FIT were permitted to register for GST/HST purposes).

Under the Micro Feed-In Tariff Program in Ontario, homeowners may install solar panels on their roof or elsewhere on their property, engage in activity of electricity generation, and engage in the commercial activity of selling the electricity to the Province of Ontario.  The issue is whether the homeowner is renovating used residential property (where no ITCs would be allowed) or purchasing solar panels and other equipment to manufacture energy and sell that energy to the province.

The Info Sheet determines that the homeowner (participating in the Ontario Micro FIT program) must register for GST/HST purposes if he/she receives more that $30,000 per year from the province under the program.  If the homeowner does not make $30,000 under the program, he/she may be a "small supplier" and would not be required to register for GST/HST purposes.  Small suppliers may voluntarily register for GST/HST purposes.

If a homeowner registers for GST/HST purposes, he/she must charge, collect and remit GST/HST on the money received from the Ontario government under the FIT Program.  They also must be careful to charge GST/HST on other taxable supplies (e.g., garage sales, sales of used cars, etc.).

If a registered homeowner purchases equipment to be used in connection with energy generation, he/she may claim ITCs and recover the GST/HST paid on those purchases.  However, these claims are subject to an audit by the CRA.  As a result, homeowners must be careful to not use the CRA as a personal ATM machine.  In other words, the CRA will scrutinize ITC claims to ensure unrelated home repairs and other personal expenses do not give rise to ITC claims.

For more information, there is a complex / high level opinion given by Torys LLP to the Solar Industries Association that has been posted on the Internet. For even more information, please go to the Solar Industries Association web-site.

Timmins Endorses Anti-HST Resolution

The city of Timmins is a northern Ontario city who is using its municipal voice to request an harmonized sales tax (PVAT portion) point of sale exemption on heat & hydro.  The Daily Press reports in an article entitled "City support resolution fighting HST" that the City of Timmins endorsed a resolution calling on the Ontario government to exempt items of necessity, such as gas and utilities.

It would be preferable if the cities would use proper language as they are not looking for an exemption.  The government of Ontario does not have power to amend the Excise Tax Act (Canada) to add an exemption.  Ontario does have the power to grant point of sale rebates. A point of sale rebate on a taxable good is better than an exemption because suppliers of exempt property and services are not entitled to claim input tax credits in connection with business inputs related to the exempt supply.

The resolution endorsed by Timmins was prepared by North Bay. North Bay's resolution has been forwarded to other Northern Ontario cities including Sudbury, Sault Ste. Marie and Thunder Bay.

Maybe Timmins could seek Shania Twain's voice and the message will get more press.

 

Continue Reading...

Canada Revenue Agency Issues Draft Policy On HST Self-Assessment & Seeks Comments

It is unusual for the Canada Revenue Agency (CRA) to seek public comments on a difficult harmonized sales tax ("HST") topic.  Take advantage of the opportunity to shape their future policy.

On September 9, 2011, the CRA released DRAFT GST/HST Notice 266 "Harmonized Sale Tax - Self-assessment of the provincial part of HST in respect of property and services brought into a participating province".  The deadline for filing comments is October 31, 2011.  This document is 77 pages in length, so it will take time to review and find what will not work in practice.

Financial services providers, financial institutions, multi-jurisdictional charities & non-profit organizations, universities & colleges with campuses in more than one province, long term care home providers operating in more than one province, residential real estate management companies operating in more than one province, doctors and medical professionals or management companies operating in more than one province and other exempt businesses would be affected by this draft policy.  Non-resident companies also should be mindful of the draft policy if they are active in Canada and make exempt supplies.

In addition, even though the HST provinces should realize that they import supplies, they may not think of the HST consequences.  Ontario, Nova Scotia, New Brunswick, Newfoundland/Labrador and British Columbia (until they stop being a participating province) should also consider how the policy will affect them.

While the policy is in draft, it will be applied going back to July 1, 2010.  Also, while it is draft now, it will be finalized in the future.  The CRA auditors will consider this policy to be an assessment road map.  Please take the time to make sure it reflects a workable solution.

While it is self-serving for me to say this: Ask a sales tax lawyer for help in reviewing the draft policy and writing your comments.  This is your chance to improve your future and you can save money in the long run if you fix the problems before the policy is engraved in stone.

Continue Reading...

For Many Businesses In Ontario, Only The Accounting Departments Knows HST Means More Work

When harmonized sales tax ("HST") was announced to be introduced into Ontario, the McGuinty Government told everyone that the administrative burden for businesses will decrease.  Those who work in the area know the truth - there is more work now than there was before HST.

Big businesses (many of which are not really that big) have a greater administrative burden with HST record keeping and reporting because they recapture certain input tax credits and undertake the calculations very quickly or face late filing penalties. 

Builders of real property experience a greater administrative burden with HST because they must file many different forms for transitional rebates, new housing rebates and the recaptured input tax credits.  What they did not tell builders is that they will have to file separate forms for the GST portion of the rebate and the PVAT portion of the rebate.  Builders also face late filing penalties.

Same holds true for long term care home and retirement home builders who also must file multiple forms to claim the new residential rental property rebates and transitional rebates (separate forms for each for the GST portion and the PVAT portion).  I have spoken with one client who spent hours just trying to determine which forms needed to be filed out.  Some portions of some forms did not need to be completed because there were other forms to complete instead.  My client could not figure out what to do to get the much needed money back and called me.  It even took me a couple of billable hours to create the road map.  Quite frankly, the forms are a bureaucratic mess.  I should also note that after the forms are filed by builders, they are usually audited and valuations are required before the money is paid (often after a year of waiting).

Public sector bodies (municipalities, universities, schools, hospitals, charities, not-for-profits) also have to complete and file separate forms for the GST portion and the PVAT of the public sector body rebate.  In most cases, the percentage of the rebate at the federal level is different than the rate at the provincial (PVAT) level.  If the public sector body (e.g. a charity) operates in more than one province, there are separate calculations because the provincial rebate rates are not harmonized.  Some provinces do not offer all the rebates.

In addition, businesses must collect HST according to the place of supply rules.  Some of these businesses are charging HST on transactions where they did not previously collect provincial sales tax.  This may be because the sales tax base changed or it may be because the transaction involves an HST province.  Prior to HST, there may not have been a nexus between the supplier in the province and after HST the business is a tax collector of HST.

There are many other examples that I could provide.  Many involving having to spend large amounts on legal or accounting advice to make sure 13%/15%/12% mistakes are not made.  Instead of providing more examples where the administrative burden has increased, I will ask you to provide real life examples by making comments.  Please add to the discussion.

Deregistered Charities Face GST/HST Issues

When I say "deregistered charities", I am referring to deregistration as a charity and not deregistration for GST/HST purposes.  If a charity that was a registered charity is deregistered as a charity (no longer considered to be a charity by the Canada Revenue Agency (CRA)), that entity will face a number of assessments, including GST/HST, if they do not make changes.

If an entity is deregistered as a charity, it would have to determine if the supplies made by it are exempt or taxable for GST/HST purposes.  Many supplies made by charities are exempt pursuant to Part V.1 of Schedule V to the Excise Tax Act (Canada).  A key pre-condition to the exemption may not be satisfied after deregistration.  If the exemption is no longer available and the entity does not change its invoicing (charging) practices, it may be assessed for failure to collect GST/HST.

If supplies become taxable (when a charity no longer makes exempt supplies), the entity must determine if they may claim input tax credits paid by it on business inputs.  The accountants and book-keepers will have to undertake a careful review.  If the entity does not claim input tax credits, it may lose its opportunity.

If an entity is deregistered as a charity, it would no longer be entitled to claim public service body rebates to recover otherwise unrecoverable GST/HST paid on business inputs.  Charities may claim a public service body rebate of 50% of the GST portion.  Depending on the province(s) in which a charity operates, the charity may claim another rebate for the PVAT (provincial) component.  If the charity is deregistered, a key pre-condition of entitlement will no longer apply.  If the entity does not change the way it completes its GST/HST return, it may be assessed to draw back rebates improperly claimed.

There are many other changes that may be experienced by specific charities.  For example, certain charities take advantage of the election in section 211 of the Excise Tax Act (Canada) and that benefit would no longer be available.  Certain volunteer reimbursements and allowance rules would not longer be available. Certain charities could deregister for GST/HST if they are below the small supplier threshold for charities. 

If the CRA is talking about deregistration of an entity as a charity, that entity needs to address the issues in that discussion.  If they ignore the CRA during the deregistration process and do not take steps to revisit all elements of charging GST/HST and taking advantage of entitlements, there may be costly assessments against the former charity and/or the directors of the charity.

Smells Fishy: Canada Revenue Agency Obtains Court Orders To Access Books and Records of Quebec Municipalities

The Globe and Mail newspaper is reporting that the Canada Revenue Agency (CRA) has obtained Court orders from the Federal Court of Canada ordering 146 Quebec municipalities to provide records on payments to outside contractors and consultants.  In the article entitled "CRA seeks court orders to open books of 146 Quebec municipalities", the Globe and Mail reports that based on affidavits filed with the Federal Court, the CRA is focusing on unreported income of persons to whom the municipalities make payments.  The report indicates that the CRA has obtained Court orders previously in respect of 88 municipalities in and around the Eastern Townships and Department of Justice lawyers are scheduled to be back in Federal Court in Montreal on Monday to obtain similar orders for the towns in and around the Quebec City’s north and south shore.

I have concerns that the CRA's Court orders set a precedent.  The CRA may be emboldened to obtain similar Court orders for municipalities everywhere.  It sounds (and smells) like a fishing expedition on the part of the CRA.  The CRA believes (rightly or wrongly) that certain illegal activity is happening in the area of Quebec municipal contracting (there are news reports of mob activity in Quebec in the construction industry) and yet the CRA affidavits that accompanied the motion filed with the Federal Court is not focused on named companies.  Based on the news reports, the affidavits seek information on "unnamed persons" and are extraordinarily broad in scope (meaning large volumes of documents and information are required to be provided by municipalities to the CRA).

I have concerns that the CRA's Court orders are not limited to just income tax and failures by contractors and consultants to pay income tax.  What about goods and services tax ("GST") and Quebec sales tax ("QST")?   If there is unreported income tax, there is surely unremitted GST and QST.  If municipalities and townships paid contractors and consultants "under the table", there could be assessments against the municipality/township for failure to pay GST and QST.  These assessments could get quite large if there are indeed "payment issues".  Municipalities already have budget deficit issues - large assessments may prove to be financially problematic (not to mention that the provincial government and federal government (depending on whether federal or provincial taxes are assessed) would receive a penalty and interest payment from the municipalities.

What is ironic is that the recent judicial review applications (e.g., Tele-Mobile) have been denied by the Federal Court on the basis that the Tax Court of Canada has jurisdiction over tax matters and tax statutes contain a complete code.  A resolution will be tabled at the Canadian Bar Association meeting in Halifax in August to expand the jurisdiction of the Tax Court of Canada.

Municipalities throughout Canada should watch these cases carefully and any municipality could be next (the Department of Justice lawyers have the motion materials precedent ready amend and file).  There should be a cause for concern not only to municipalities, but also businesses.  If the CRA would go to the Federal Court and ask for broad access to the books and records of municipalities, would they not make similar requests against businesses?

Sharing a Rumour That Has Not Been Independently Confirmed

I have been informed (and have not been able to independently confirm) that a number of CRA auditors are planning on auditing municipalities and hospitals because they understand that budgetary contraints within the MUSH (municipalities, universities, schools and hospitals) sector has potentially reduced compliance with goods and services tax ("GST") and harmonized sales tax ("HST") rules.  While compliance with Canada's laws is important and the MUSH sector is not exclused from scrutiny, it would be disappointing if the intention of auditors is take advantage of the difficult financial circumstances of these public sector bodies.

Canada Revenue Agency Provides List of Exempt and Taxable Health Care Service Providers

In the recent Excise and GST/HST News No. 80 (Spring 2011)  (GST/HST News 80) published by the Canada Revenue Agency (CRA), the CRA puts on notice a list of health care professionals that it considers to offer TAXABLE services.  Many of these health care professionals are likely not charging goods and services tax (GST) or harmonized sales tax (HST).  This means, if these categories of health care professionals are audited by the CRA, it is likely that assessments will be issued.  In the HST provinces (Nova Scotia (15%), Ontario, Newfoundland/Labrador, New Brunswick (13%), British Columbia (12%)), the assessments may add up to large amounts.

GST/HST News 80 puts health care professionals on notice. 

The CRA's position is:

General Rule: Any basic health care service rendered to an individual by a health care professional that is specifically identified in Part II of Schedule V to the Excise Tax Act are exempt.  In other words, you find the category of health care service or health care professional in that Schedule by name or description.

According to the CRA, the following services by the following provincially regulated (licensed or otherwise certified) health care professionals rendered to individuals/patients are specifically identified in Part II of Schedule V to the Excise Tax Act are as a general rule exempt:

  • physicians,
  • dentists and orthodontists,
  • registered nurses, registered nursing assistants, licensed or registered practical nurses, registered psychiatric nurses,
  • optometrists,
  • chiropractors,
  • physiotherapists,
  • chiropodists,
  • audiologists,
  • speech-language pathologists,
  • occupational therapists,
  • psychologists,
  • podiatrists,
  • midwives,
  • dieticians,
  • social workers, and
  • dental hygienists.

Exception to General Rule: Any health care service provided by other therapists and health care workers are TAXABLE.  If you cannot find a category of health care professional or health care worker in Part I of Schedule V to the Excise Tax Act, their service re likely taxable.

While these other therapists and workers may be professionals in their fields and they may be certified in  their province or territory, they are not identified in the Part II of Schedule V to the Excise Tax Act. Therefore the Act’s exemptions do not apply to their services even where, for example, the service is similar to a service performed by an identified health care provider, such as a nurse or physiotherapist. Some examples of therapists and other health care workers whose
services are generally considered by the CRA to be taxable for GST/HST purposes are (this is not an exhaustive list):

  • assistants such as physiotherapy and occupational therapy assistants
  • social service workers (this is a separate profession from social workers)
  • laboratory technicians;
  • psychometrists;
  • nursing care aides;
  • polysomnographic technologists;
  • acupuncturists;
  • kinesiologists;
  • massage therapists;
  • naturopaths;
  • reflexologists;
  • homeopaths;
  • reiki therapists;
  • sports therapists;
  • rolfing therapists;
  • traditional Chinese medicine providers;
  • phlebotomists;
  • personal support workers.

Exception to Exception: Certain services provided by an health care professional or health care worker listed above may qualify as exempt when provided to an individual in an exempt health care setting. For example, supplies made by the operator of a nursing home of services rendered by nursing care aides are exempt when they form part of an exempt institutional health care service rendered to a resident of the nursing home. In addition, services similar to those rendered by the providers listed above may be exempt when rendered by an identified exempt health care provider. For instance, if physiotherapists are entitled under the provincial law that regulates physiotherapy services to perform acupuncture on their clients in the course of
providing physiotherapy services, then their physiotherapy services that involve acupuncture would be exempt.

There are many other exceptions to the general rule.  For example, health care services provided by the exempt list of professionals to corporations (not rendered to individuals or patients) are taxable.  Also, certain services (e.g., cosmetic procedures, teeth whitening, etc.) are taxable even when provided by a licensed professional.

GST/HST News 80 has been provided because the CRA auditors need tools when going to audit health care professionals.  There is an increased likelihood that health care professionals will be in the CRA national priority list for audits this year and in the coming years.

If you are not sure whether you are required to charge GST/HST or not, you should contact a GST/HST lawyer or professional. You may also write the CRA for a GST/HST ruling.

Some Payments Made By Limited Partnership To The General Partner Are Subject To GST/HST

First, it is important to note that not all payments made by a limited partnership to the general partner are taxable from a goods and services tax (GST) / harmonized sales tax (HST) perspective.  The determination of whether GST/HST is payable/collectible can only be determined based on the facts. 

That being said, the belief that any and all payments from limited partnership to the general partner are outside the reach of GST/HST is incorrect.  The reason why it is important to consider the GST/HST status of such payments is that the general partner may be assessed by the Canada Revenue Agency (CRA) for failure to collect and remit GST/HST (or the limited partnership may be assessed by the CRA for failure to pay GST/HST) on certain amounts.  With the implementation of HST, the failure to consider the GST/HST status of payments increased from a 5% error in Ontario to a 13% error (from a 5% error in British Columbia to a 12% error and from a 13% error in Nova Scotia to a 15% error).

As discussed in my post on June 7, 2011 "Partners & Partnerships: Transfers Are Tricky", partners are required to charge, collect and remit GST/HST in respect of supplies of property or a service to the partnership otherwise than in the course of the partnership’s activities. Partners are not required to charge, collect and remit GST/HST in respect of supplies property or a service to the partnership that are provided in the in the course of the partnership’s activities.

The CRA takes the position that with respect to certain amounts of consideration paid by the limited partnership to the general partner, the general partner may be considered to provide property/services "otherwise than in the course of partnership activities".

The CRA also takes the position that the structuring of payments by the limited partnership to the general partner is important.  There are many payments/distributions/amounts of consideration that the CRA may look at in this context and it is beyond the scope of this blog article to address every one detail.  That being said, the CRA has seen structures whereby the general partner is paid amounts prior to the determination of profits and losses of the partnership and scrutinizes these payments.  The issue is whether any amount paid in such a manner is an expense for property provided or services rendered otherwise than in the course of partnership activities.

As discussed in my June 7, 2011 blog article, if a partner (in this context of this blog post, a general partner) performs a type of service in the marketplace or to more than one limited partnership/entity, the CRA may take the position that the services rendered otherwise than in the course of partnership activities.  For example, if a general partner provides management services to more than one entity, it may be considered to be a management services company and the amounts paid by the limited partnership to the general partner may be considered to be taxable.

General partners who did not seek GST/HST advice in connection with the structuring of the limited partnership may have missed this issue and should revisit the GST/HST status of the various payments of consideration.  This is especially important if the limited partnership/general partner operates in the financial services sector, health care sector, residential real estate sector or MUSH sector because it is less likely that the mistakes will be in the context of wash transactions (that is, there is an offsetting input tax credit to reduce the exposure).

GST/HST Taxable Independent Contractor vs Non-Taxable Employee

When I say "taxable", I am talking about goods and services tax (GST) and harmonized sales tax (HST).  I am not talking about income tax in this blog post when I say "taxable".

The recent Tax Court of Canada decision in Craigmyle v. M.N.R. reminds us that planning is required for a business to claim that a person who is paid by the business is an independent service provider and not an employee (or vice versa).  Generally speaking, in the context of GST/HST, it is better that an individual is an employee because labour of employees is not subject to GST/HST.  An employer does not pay GST/HST to the employee and the employee does not need to register for GST/HST purposes.  During an audit, the assessment exposure/risk does not include the salary accounts in the general ledger.

That being said, a business may decide to look at other legal requirements when deciding how to structure the business (the GST/HST does not operate in a vacuum).  Since an employer has Canada pension plan and employment insurance payment obligations and income tax withholding obligations in regards to employees, the business may choose to retain the services of independent service providers and pay GST/HST on invoices submitted by the independent service providers for their services (if they are registered for GST/HST purposes).  The business must make a business decision.

If the business hires independent service providers, it should to ensure that independent service providers who make taxable sales in excess of $30,000 (the small supplier threshold) register for GST/HST purposes and charge GST/HST.  The business will have to be mindful of its own GST/HST assessment exposure/risk as a purchaser for non-payment of GST/HST.

The Craigmyle case deals with Canada pension plan and employment insurance.  In this case, the Canada Revenue Agency determined that the individual was an employee and the Tax Court of Canada disagreed --- the individual was an independent contractor.

The Tax Court of Canada examined what the Courts have held to constitute a contract of service. Based on Wiebe Door Services Ltd. v M.N.R. (F.C.A.) [Wiebe Door], and accepted and expanded by subsequent cases, the following test is applied focusing on the total relationship of the parties with the analysis centered around four elements:

(a) degree of control and supervision;

(b) ownership of tools;

(c) chance of profit; and 

(d) risk of loss.

Each situation has unique facts because the issue is the characterization of a relationship. Each case must be decided on a case-by-case basis. 

Business that are engaged in exempt activities for GST/HST purposes are less likely to structure the business around independent service providers because the GST/HST cost is generally unrecoverable (in Ontario that would be 13% on the service provider's fees).  Businesses that are engaged in zero-rated or taxable activities can recover the GST/HST paid to independent service providers.  The focus would be on the assessment risk in the event that mistakes are made or the Canada Revenue Agency has a different opinion concerning the characterization of the expense.

A Snow Storm is Heading For Southern Ontario & Municipalities Pay More with HST

Fact: It snows in Canada.

Fact: Snow plowing services were not subject to Ontario retail sales tax and are now subject to HST at the rate of 13% (previously snow plowing services were subject to 5% GST).

Fact: Prior to July 1, 2010, municipalities received a 100% rebate of GST paid on outsourced snow plowing services.

Fact: After June 1, 2010, municipalities must pay HST (13%) and receive a 100% rebate of the GST portion and only 78% rebate of the HST/PVAT portion. 

This means that 1.76% is not recoverable.  This means that HST has resulted in increased costs to municipalities for snow removal.  Depending on a municipalities snow removal budget and use of 3rd party contractors, the cost could exceed $1 Million per season.

Environment Canada is telling us that snow removal services are going to be needed today and tomorrow. My opinion is that the winter of 2010/2011 will the politicians a lesson that snow removal services should be zero-rated as they are necessary in Ontario.  Alternatively, municipalities need a 100% MUSH sector rebate on the PVAT portion.

I always get often angry emails from people when I raise areas where the GST/HST regime can be improved. Guess I should expect some emails regarding this post.

Did You Know That McGuinty Changed The Tax Status of Fire Trucks With HST Implementation

On July 1, 2010, fire trucks became subject to HST in Ontario.  Previously fire trucks were not subject to Ontario retail sales tax (ORST).  Paragraph 7(1)23 of the Retail Sales Tax Act (Ontario) exempted "fire fighting vehicles, as defined by the Minister, when purchased at a price of more than $1000 per vehicle for the exclusive use of a municipality, university, public hospital, local services board or volunteer group, and repairs for such vehicles."  As a result, the tax rate increased by 8%.

Many of the bodies that purchase fire trucks are engaged in exempt activities.  This means that they do not recover the 8% HST/PVAT by way of an input tax credit.  many of the bodies that purchase fire trucks are entitled to a partial MUSH sector rebate.  However, none get 100% of the HST/PVAT back.  This means fire trucks are more expensive due to unrecoverable HST.

With provincial/municipal/university/hospital and other budgets so constrained, I sincerely hope that McGuinty's decision to collect more tax on fire trucks does not cost any Ontarian their life.

By the way, I disagree with McGuinty's decision to impose HST on fire trucks.  I support our hard working fire men & women who bravely put their lives on the line for us.  Let me know if you agree with me and let McGuinty know that you disagree with his decision.

The ABCs of Harmonized Sales Tax

Harmonized sales tax ("HST") is here to stay in Ontario for 5 years due to the arrangement between Premier McGuinty and the Government of Canada.  The provincial portion of the rate (currently 8% and called PVAT to those in the know) may be altered on or after July 1, 2012.

Now for something serious and not so serious at times - the ABCs of HST:

A is for Almost Everything - HST covers almost everything;

B is for Bookkeeping - Registrants need to keep detailed records and maintain books are records that can be audited by the Canada Revenue Agency Auditors;

C is for Canada Revenue Agency - The CRA enforces the HST (both the GST and PVAT portions);

D is for Documentary Requirements - A top 10 audit issue is that registrations do not maintain adequate information to support input tax credit and refund claims;

E is for Exemptions - Exempt means that HST/GST is not charged, but the supplier is not entitled to claim input tax credits - so GST/HST is passed on in the price of the property/services;

F is for Filings - Registrants must file their GST/HST returns on time and large businesses must recapture ITCs on time and builders must report certain information in their filings or face costly penalties;

G is for Government Contracts - Suppliers to the Ontario, British Columbia and Nova Scotia Governments must charge GST/HST (previously Ontario and BC did not pay GST or PST);

H is for HST - should have expected this one - or I could have written "Hated Sales Tax";

I is for Input Tax Credits - ITCs are good for businesses engaged in commercial activities who get to recover GST/HST on business inputs (good until they get audited and mistakes are found);

J is for Judge - If you disagree with the CRA about an assessment, file a notice of objection and notice of appeal and take the dispute to a Tax Court of Canada judge;

K is for Knowledgeable - While it is self-serving, you need to talk to a knowledgeable practitioner as the HST rules are complicated;

L is for Legislation - the Excise Tax Act needs to be updated - we have not had a good review since 1997;

M is for MUSH Sector - The MUSH (Municipalities, Universities, Schools, Hospitals) sector have a rebate scheme and difficult rules;

N is for Non-Residents - Businesses outside Ontario (e.g., in other Canadian provinces, the United States and overseas) may be required to charge, collect and remit HST and do not know or understand it;

O is for Ontario Retail Sales Tax - HST replaces ORST, but ORST is still applicable on used car sales and certain insurance premiums;

P is for Place of Supply Rules - Whether you charge HST depends in part on the application of the place of supply rules, which determine if the supply takes place in an HST province and which HST province;

Q is for Quick Method - really a misnomer because it is not quick and some people using it will have to apply special transition rules;

R is for Recaptured ITCS - Large businesses (those that make over $10 million is sales per annual alone or with affiliated entities) must pay back certain ITCs claimed relating to PVAT and must report on monthly GST/HST return;

S is for Small Suppliers - Small supplier do not have to register for GST/HST purposes;

T is for  Technology - Technology helps capture and report GST/HST information - this cannot be done manually;

U is for Unhappy Consumers - Consumers are paying more on electricity, home heating, bikes, services, etc because of HST;

V is for Voluntary Disclosures - If you make a mistake and have not been contacted by a CRA auditor, you may consider making a non-names voluntary disclosure via a practitioner so save paying a penalty;

W is for web-site - go to www.thehstblog.com for information on HST or www.cra.gc.ca;

X is for Xerox - you need to keep good records as evidence to show auditors - you need to invest in a good scanner or photocopier;

Y is for Yikes - This is what a person says when they hear they will be audited for HST (probably say something else - but this is a clean web-site); and

Z is for Zero-rated - If property or services are zero-rated, you pay GST/HST at a rate of 0% and the supplier gets an input tax credit (therefore, health care and educational services should be zero-rated instead of exempt).

MUSH Sector Rebates

This Post is out-of-date

A registrant/non-registrant for GST/HST purposes which makes exempt supplies will not be entitled to claim input tax credits (unless the entity also makes taxable supplies). Some entities are not entitled to claim any rebates of the GST/HST paid on business inputs.  The MUSH sector may or may not be entitled to claim a rebate depending on the province in which the entity is located.

I have promised to share my MUSH sector rebate chart.

MUSH Sector Entities GST Portion  Rebate HST Portion Rebate - Ontario HST Portion Rebate - BC HST Portion Rebate - NS HST Portion Rebate - NB HST Portion Rebate - Nfld
Municipalities 100% 78% 75% 57.14% 57.14% No rebate
Hospitals 83% 87% 58% 83% No rebate No rebate
School Authorities 68% 93% 87% 68% No rebate No rebate
Universities & Colleges 67% 78% 75% 67% No rebate No rebate
Charities 50% 82% 57% 50% 50% 50%
Qualifying Not-for-Profits 50% 82% 57% 50% 50% 50%

This chart highlights many important problems for the MUSH sector. 

1. The lack of significant rebates for hospitals in British Columbia, Newfoundland/Labrador and New Brunswick will put a strain on provincial budgets due to the unrecoverable health care costs.

2. The lack of significant rebates for school authorities and universities and colleges in Newfoundland/Labrador and New Brunswick will put a strain on provincial budgets due to the unrecoverable education costs.

3. Nova Scotia was able to relieve some of its budget pressures when it signed a CITCA.

4. For Ontario, the effective unrecoverable GST/HST rates (what the entity will not be able to recover by way of a rebate) in respect of purchases for use in exempt activities are:

MUSH Sector Entity Effective GST/HST Rate after Rebate
Municipalities 1.76%
Hospitals 1.89%
School Authorities 2.16%
Universities and Colleges 3.41%
Charities 3.94%
Qualifying Not-For-Profits 3.94%

4. For British Columbia, the effective unrecoverable GST/HST rates (what the entity will not be able to recover by way of a rebate) in respect of purchases for use in exempt activities are:

MUSH Sector Entity Effective GST/HST Rate after Rebate
Municipalities 1.75%
Hospitals 3.79%
School Authorities 2.51%
Universities and Colleges 3.40%
Charities 5.51%
Qualifying Not-For-Profits 5.51%

 

First Ontario HST Returns May Be Filed Now

This is so exciting (NOT) - It is August 2010 and this means that some businesses that are in a net refund position (that is, their input tax credits exceed their GST/HST collected) may be filing their GST/HST returns for the month of July 2010.  The businesses that would file their GST/HST returns early would most likely be monthly filers.  Some examples are builders of multi-unit residential complexes, persons who made a large purchase of equipment in July 2010 due to the recoverability of HST, exporters and exempt entities.

July 2010 has now ended (months seem to come and go so much more quickly).  Businesses will be working on their records and filing their GST/HST returns (many must now file electronically).

The first GST/HST return must include HST collected during the transition period - please do not forget.  All HST must be remitted to the Receiver General of Canada - do not send it to the ontario Ministry of Finance.

When calculating input tax credits, please include all GST/HST paid or payable before August 1, 2010.  If you are a large business, do not offset the recaptured ITCs against the ITCs collected number - it has its own line on the GST/HST return.

Will ORST Refunds Be Another TFSA Miscommunication?

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.

Many Government Purchasing Departments Are Reopening Contracts and Seeking Price Reductions

This past week, I have seen a dozen or so requests made by municipal and Ontario government departments writing to their suppliers and seeking price reductions relating to existing contracts on the basis that savings related to embedded Ontario retail sales tax (ORST) must be passed on to the buyer (government department).  Most of the requests that I have seen suggest that the basis for the request is contained in the harmonized sales tax (HST) laws.

The truth is that the HST laws do not require that suppliers reopen contacts for renegotiation and pass on any savings to the purchasing government department.  The question is whether there is a provision in the contract that requires that any savings relating to tax reform be passed on to the purchasing government department.  So far, I have not seen any contract containing such a provision --- but, some may exist.

The practical reality is that if a supplier to a government purchaser does not make adjustments or open the kimono so to speak and engage in a discussion), then the government purchasing department may not renew a contract or may treat the supplier negatively in the future in a procurement situation.  As a result, even though the contract does not require price adjustments, suppliers may choose to make adjustments in order to keep the customer happy.

I will give you an example that may seem odd to a sales tax lawyer/accountant without full facts.  In one matter, a client provided a photocopier and toner to the government purchaser.  The cost of the photocopier was already a sunk cost.  However, the purchasing government department said they expected a price reduction because the supplier bought toner and the ORST cost of the toner was within the contract pricing.  As a result of HST, the supplier would no longer pay ORST on the toner and would recover the HST on the toner by way of an input tax credit.  The government department wanted a price adjustment to remove the ORST on the toner that would have been considered by the supplier in its initial pricing under the contract. The small price adjustment made sense to keep the purchasing manager happy.

With three of the matters I reviewed this week, due to the nature of the contract, there was no ORST savings to pass on to the government department.  That being said, the purchasing manager needed to be convinced and the client needed to provide detailed information about its pricing in order to prove to the purchasing manager that this was the case.  The dilemma was that in proving that there was no ORST cost embedded in the pricing, the government department needed to be provided with information that could be used in the future to negotiate price reductions.  in other words, the supplier needed to show too much of its internal information and supplier information.

Two clients priced their contract years ago so that some aspects of the contract were loss leaders and some aspects of the contract resulted in a profit.  The contracts as a whole resulted in a profit to the supplier.  In this exercise, the purchasing government department attempted to reduce the profit margins on the profitable aspects of the contract in order to achieve overall savings (to the detriment of the suppliers' bottom lines).

In all cases, the purchasing manager made it clear that he/she expected price adjustments and would communicate internally if no price adjustments were made.  Pressure was exerted and suppliers to the government were discouraged from maintaining the status quo and not "throwing the government a bone".

One reason for the pressure on the government side is that the Ontario government will start to pay HST on goods and services that were not subject to GST and/or ORST in the past.  Municipal governments do not receive all of the Ontario HST component back by way of a rebate (previously and under HST, 100% of the GST payable was refundable).

I would be pleased to discuss these issue that I am seeing with anyone in this situation.

The Toronto Post-G20 Clean Up and HST

As many businesses in Ontario know, there was damage in downtown Toronto that resulted from the actions of a few protesters during the week-end of July 26-27.  Here are a few tips about the pre- and post- harmonized sales tax (HST) world.

  • If a window is purchased in the pre-HST period at a retailer of glass, then goods and services tax (GST) and Ontario retail sales tax (ORST) will apply.
  • If a window is purchased on an installed basis during the pre-HST period, GST will apply, but ORST will not apply.  ORST will be incorporated into the cost of the installed window as it will be a cost of the supplier of the installed window.
  • If a window is purchased pre-HST or installed pre-HST, then the ORST cost (whether paid to the retailer or indirectly to the installer), the ORST is not recoverable.
  • If the window is purchased or installed post-HST (on or after July 1, 2010), then GST and HST would apply.
  • If a clean-up crew is hired to remove painted slogans in the pre-HST period, GST would apply, but ORST will not apply.
  • If a clean-up crew is hired to remove painted slogans in the post-HST period, GST and HST will  apply.
  • If the retailer is a store and engaged in commercial activities, they would be entitled to claim a full input tax credit to recover any GST/HST.
  • If the business is a bank, it is unlikely that the bank may claim an input tax credit and recover GST/HST paid to repair the damage.
  • If an insurance company enters into the contract with the window installer, it is unlikely that the insurance company will be entitled to recover the GST/HST because the sale of insurance policies is an exempt financial service. [Note: have the business buy the window and claim the in input tax credit]
  • If the Ontario provincial police buy a new car pre-HST, GST may not apply if the OPP are on the list of Ontario government departments (the federal government cannot charge tax of the provincial government).
  • If the Ontario provincial police buy a new police car post-HST, they must pay GST and HST.  The current rules do not provide rebates for provincial government departments.
  • If the Toronto police buy a new car pre-HST, they must pay GST and ORST, but would get a 100% rebate of the GST portion (not the ORST portion).
  • If the Toronto police buy a new car post-HST, they must pay GST and HST and will be entitled to claim the municipal PSB rebate to recover a large portion (not all) of the GST/HST paid.

I do not intend to suggest that businesses should wait. I am merely highlighting the different results caused by the tax reform.

Service Providers That Make Presentations May Have to Rethink Venue

There are many types of service providers who make presentations to audiences.  Sometimes the audience is the public (e.g., business people who want to learn how to benefit from Facebook). Sometimes the audience is employees a a particular company (e.g., a law firm brings in a marketing guru t talk about business and sales plans, a nursing home operator brings in service providers to lecture bout ways to improve delivery of services, a bank brings in a security expert to talk to employees in a lecture hall, etc.).

The general HST place of supply rules may not apply to these types of transactions.  There is a special HST place of supply rule for services in connection with a location specific event. 

Section 28 of the New Harmonized Value-added Tax System Regulations provides:

"A supply of a service in relation to a performance, athletic or competitive event, festival, ceremony, conference, or similar event is made  in a province if the service is to be performed primarily at the location of the event in the province."

This means that if a service provider makes supplies of such services, they would charge HST at the rate of 13% if the event is held in Ontario (assuming the  50%"primarily" test is satisfied). if a service provider makes supplies of such services, they would charge HST at the rate of 12% if the event is held in British Columbia (assuming the  50%"primarily" test is satisfied). Similarly, if a service provider makes supplies of such services, they would not charge HST (but would charge GST) if the event is held in Alberta, Quebec, Saskatchewan, Manitoba or PEI.

The "primarily" test would be most often applicable if the person providing the service is from a different province than the province in which the event occurs.  If an Alberta-based marketing guru gives a presentation in Ontario, it is possible that HST would not apply to his/her speakers fee.  Based on my own experience giving presentations, it takes a significant amount of time to prepare the presentation and a short amount of time to deliver a presentation.  Based on my experience, out-of-HST province service providers may be able to demonstrate that HST is not applicable on a case-by-case basis.  that being said, if a service provider does not charge HST in relation to services provided in an HST province, they should maintain documentation regarding that decision.

I will predict that border cities (that is, cities on the border between an HST province and a non-HST province) will see a decrease in conferences.  Many conferences previously held in places like Ottawa will move to alternatives, such as Gatineau, Quebec.

Finally, MUSH sector and exempt businesses will consider venues for corporate events and internal training.  if an entity cannot claim full input tax credits and recover HST, if may be less expensive to hold events outside HST provinces.  That being said, the travel costs and costs associated with being away from the office might outweigh the HST costs.  That being said, if Paradise Island, Nassau, Bahamas offers great deals, we may see more winter/spring events outside HST provinces.  That being said, the Canada Revenue Agency might take a close look at taxable employee benefits.

June Transactions May Limit Unrecoverable Sales Taxes

June 2010 may see an increase in last minute reorganizations by MUSH sector entities wishing to minimize unrecoverable harmonized sales tax (HST).  Here is a real life example with numbers. 

Example: A hospital needs to undertake a reorganization in order to remove unrecoverable HST in the current structure (the corporate structure has employees in one entity and that entity provides the services of the employees of that entity to other separate legal entities in the corporate structure, which results in GST being payable on the inter-company payments).

Let's say that the inter-company services of workers fees is $1,000,000 per year.  For the annual period July 1, 2009 to June 30, 2010, the GST payment would have been $50,000 and the hospital authority would have recovered 87% (or $43,500) by way of a MUSH sector rebate.  The unrecoverable GST would have been $6,500.

For the period July 1, 2010 to June 30, 2011, the same $1,000,000 inter-company fee for services would result in $50,000 in GST and $80,000 in HST (Ontario).  The MUSH sector rebate would be $43,500 of the GST portion and $66,400 of the HST portion (for Ontario) (and in BC it would be $70,000 in HST and a MUSH sector rebate of $40,600).  As a result, the unrecoverable combined GST/HST would be $20,100 (6,500 + $13,600).

The additional $13,600 will add up over time.  As a result, a reorganization is necessary based on this HST analysis and other considerations. 

When should the reorganization occur?  Let's assume that the fair market value of the assets involved in the reorganization is $10,000,000.  If the transaction is completed before July 1, 2010, the hospital entities in the structure would save $136,000 in unrecoverable HST.  Since the structure involves a number of charities, the unrecoverable HST is actually higher because the MUSH sector rebate for charities is 82%.  If you do the math, it makes sense to complete reorganizations before July 1, 2010.

As a result, it would be prudent for MUSH sector entities (which cannot recover GST/HST by way of input tax credits) to consider whether they should reorganize their structure in order not to "bleed" money after HST.  MUSH sector entities need all the money in their cash flow.

HST Will Cost Municipalities

The Sudbury Star has posted an article that harmonized sales tax will cost the City of Sudbury $450,000 per year.  This will mean a budget shortfall and potentially higher municipal taxes. 

Under the federal Excise Tax Act (Canada), where a municipality makes exempt supplies (and cannot recover the amounts paid as GST as input tax credits), the municipality may claim a rebate of 100% of the GST.  So, under the GST regime, municipalities are tax neutral.  This will continue for the 5% GST portion of expenditure by municipalities.

However, under the HST, the 8% provincial component in Ontario is not fully recoverable.  There are two scenarios.  First, if the HST paid by the municipality matches with a exempt supply by the municipality, the rebate is 78% of the 8% provincial HST component.  For example, if a municipality paid $100,000 for third party snow removal services, the municipality would pay $5,000 GST (that is fully recoverable) and $8,000 OHST.  Only 82% of the $8,000 is recoverable by the municipality by way of a rebate.  The remaining 22% is an unrecoverable cost to the municipality.

Second, the municipality may be caught by the restricted input tax credit rules if the municipality sells more than $10 million in taxable supplies in a year.  I would expect that the City of Sudbury would fit into this category.  Under the restricted input tax credit rules, the OHST component of purchases of energy, certain telecommunications, certain vehicles and fuel and meals and entertainment are not recoverable for a number of years after implementation of HST.  For example, if the municipality purchases electricity that is allocable to taxable activities (e.g., the municipal skating rink, swimming pools, etc.) and the cost over a year is $1,000,000, the $80,000 in HST is unrecoverable if incurred in after July 1, 2010 to June 30, 2013.

HST also means that consumers will pay more for certain property and services acquired from the City.  The article provides the following examples:

* A one-year adult membership at Howard Armstrong Recreational Centre will jump from $218.25 to $235;

* A three-month child, youth or senior pass to city swimming pool will jump from $59.50 to $64;

* The 25-week Walk Your Way to Wellness Program for seniors will jump from $92 to $99;

* Ice rental for the Walden Oldtimers Hockey Tournament will go from $209 to $260;

* A plot in the city's Veteran's cemetery will go from $954 to $1,027;

* Adult athletic field rates will go from $57.50 per game to $62 per game. The cost of lights, if needed, will go from $17.75 an hour to $19 an hour;

* Renting the chalets at Adanac or Fielding Park for a Saturday night will jump from $174.75 to $188;

* Use of weigh scales at city landfill sites will jump from $16.25 to $17.50.
 

Continue Reading...

Ontario Releases HST Tips for Public Service Bodies

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:

Type of PSB Federal Rebate Percentage (of GST) Ontario Rebate Percentage (of HST)
Municipalities 100% 78%
Universities and Public Colleges established and operated on a non-profit basis 67% 93%
School Authorities established and operated on a non-profit basis 68% 93%
Hospital Authorities (only for activities of operating a public hospital), Hospitals (for eligible activities other than the operations of a public hospital) and facility operators and external providers (for eligible activities) 83% 87%
Charities and Qualifying Non-profit Organizations 50% 82%

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.

Continue Reading...