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

The Globe & Mail is reporting that Prime Minister Harper & Premier Jean Charest may sign a Comprehensive Integrated Tax Coordination Agreement (CITCA) (also known as an HST Agreement) on Friday, September 30, 2011.  In an article entitled "Ottawa, Quebec poised to ink $2.2 billion HST deal", it appears that the agreement promised during the election campaign has been negotiated.

The question for sales tax practitioners is: How different is this CITCA going to be from the model version used with Ontario, British Columbia and Nova Scotia?  It appears that Canada has agreed to a significant change.  Revenue Quebec will continue to collect the tax in Quebec.

However, will Quebec loose the QST and adopt the HST?  In other words, will Quebec lose its naming rights?

When is the implementation date?  Businesses will need time to make necessary changes.

Also, will the HST rate go up, go down or stay the same? One benefit of harmonization is that QST should no longer be payable on the GST included amount.

What point of sale rebates (provincial exemptions from PVAT) will be selected by Quebec?  Will Quebec be restricted to point of sale rebates on only 5% or will they be permitted a higher percentage of coverage for point of sale rebates?

What will happen to zero-rated financial services?  Currently, under the QST regime, many financial services are zero-rated.  Under the GST regime, many financial services are exempt.  Zero-rated is better than exempt because the intermediary financial institutions are entitled to full input tax credits on inputs purchased for use in commercial activities (including zero-rated activities). A shift from zero-rated supplies to exempt supplies will have a significant effect on financial institutions.

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Store owners, artists, and others who sell goods often have difficult discussions with their customers about the addition of harmonized sales tax ("HST") to the invoice price.  If an artist in Alberta sells a painting to a buyer at their gallery in Alberta and the buyer leaves the gallery with the painting, then they charge 5% goods and services tax ("GST").  If an artist in Alberta sells a painting to a buyer in Alberta and is asked to ship that painting to Ontario, the artist must charge 13% HST (Ontario's rate) on the painting and the shipping and handling costs.

The retailer in Ontario has similar issues (albeit the reverse problem).  If an artist in Ontario sells a painting in Ontario and the buyer leaves the gallery with the painting, the artist must charge 13% HST.  If an artist in Ontario sells a painting to a buyer in Ontario and ships the painting to Alberta, the artist must charge 5% GST only (not 13% HST) on the painting and the shipping and handling.

You can substitute the word "artist" for "retailer" and "painting" for "goods".  Retailers have similar issues.  Customers often respond negatively about the lack of "customer service".  Customers often blame the messenger retailers who are forced to charge sales tax.  If the buyer in Ontario wants to leave the store in Ontario with the goods, it will cost them more in tax.  If the buyer wants to reduce the risk of never getting their purchased good (painting) or risk damage or loss during shipping, there is a perceived added cost (the HST). 

One seller of a puppy commented to me that a customer threatened to call the police on the basis that the retailer was holding the puppy hostage until the HST was paid in Ontario.  In this case, the buyer was from the United States and knew that he could not get the HST back if he took the puppy home in his car across the border.  He also did not want the puppy sent by courier (understandably so).  It cost more in gas than the HST for the breeder to drive the puppy to the border and give the puppy to the buyer before he left Canada.  There was no solution that worked perfectly for all.

An artist in Alberta also has commented to me that she has many difficult conversations with buyers.  The buyers often wrongly argue that the persons in Alberta are not supposed to be charging HST.  The reality is that any registrant for GST purposes in Alberta may have to charge HST in certain situations and risk an assessment by the Canada Revenue Agency if they do not charge, collect and remit HST when required. 

Retailers in Alberta, Saskatchewan, Manitoba, Quebec and Prince Edward Island (and the Northwest Territories, Yukon and Nunavut)  are bound to follow Canada's federal laws.  HST and GST is imposed under a federal law. The reality is that they may have to charge HST and must know the HST place of supply rules.  The serious reality is that buyers will, from time to time, argue with the retailer an walk away from the sale.  The HST will kill some transactions.

The same holds true for retailers in Ontairo, British Columbia, New Brunswick, Nova Scotia and Newfoundland/Labrador - I mention these provinces separately as they seem to be coping better.

The more retailers understand the HST rules (in any province or territory), the easier it will be to come up with public relations statements to win the customers heart in spite of the HST.

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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 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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