barbara warren february 25, 2010 barbara warren february 25, 2010 indirect tax harmonized sales tax...

Barbara WarrenFebruary 25, 2010

Barbara WarrenFebruary 25, 2010

INDIRECT TAX

Harmonized Sales Tax Primer Harmonized Sales Tax Primer for Public Librariesfor Public Libraries

presented topresented to

Ontario Library AssociationOntario Library AssociationSuper Conference 2010Super Conference 2010

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© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Presentation Overview

1.1. Terminology and Basic ConceptsTerminology and Basic Concepts

2.2. HST ConsiderationsHST Considerations

3.3. HST – General OverviewHST – General Overview

4.4. Differences Between GST and HSTDifferences Between GST and HST

5.5. MUSH Sector HST Rebate RatesMUSH Sector HST Rebate Rates

6.6. Designation / Determination as MunicipalityDesignation / Determination as Municipality

7.7. HST – Considerations for Implementation StrategyHST – Considerations for Implementation Strategy

8.8. HST – Impact on Libraries and Other NPOsHST – Impact on Libraries and Other NPOs

9.9. Book RebatesBook Rebates

10.10. Transitional Rules, Calculations, “Tips and Traps”Transitional Rules, Calculations, “Tips and Traps”

11.11. ImportationsImportations

12.12. Planning Points – Purchase, Sales, Cash FlowPlanning Points – Purchase, Sales, Cash Flow

13.13. Planning for Implementation – Processes and ProceduresPlanning for Implementation – Processes and Procedures

14.14. Last Look at PSTLast Look at PST

15.15. For Further InformationFor Further Information

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Terminology and Basic Concepts

HST: Harmonized Sales TaxHST: Harmonized Sales Tax

GST: (Federal) Goods and Services TaxGST: (Federal) Goods and Services Tax

PST: (Ontario) Retail Sales Tax / Provincial Sales TaxPST: (Ontario) Retail Sales Tax / Provincial Sales Tax

ITC: Input Tax Credit. Essentially, a “refund” of GST and HST ITC: Input Tax Credit. Essentially, a “refund” of GST and HST paid on “inputs” (expenses)paid on “inputs” (expenses)

MUSH: Municipalities, Universities, Schools, Hospitals. MUSH: Municipalities, Universities, Schools, Hospitals. Generally cannot claim ITCs for the GST/HST that they pay. Generally cannot claim ITCs for the GST/HST that they pay. Some libraries may be Municipalities.Some libraries may be Municipalities.

NPO: Non-Profit Organization (includes libraries)NPO: Non-Profit Organization (includes libraries)

PSB: Public Sector Body. Generally all levels of government, PSB: Public Sector Body. Generally all levels of government, plus NPOs, charities, MUSH sector entities. Libraries are PSBs.plus NPOs, charities, MUSH sector entities. Libraries are PSBs.

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Generally speaking Generally speaking mostmost sales/supplies made by sales/supplies made by libraries are exempt of GST and will be exempt of libraries are exempt of GST and will be exempt of HSTHST

Means: no GST or HST charged, but GST/HST paid on Means: no GST or HST charged, but GST/HST paid on expenses cannot be directly claimed as an input tax creditexpenses cannot be directly claimed as an input tax credit

Instead libraries apply for a rebate of a percentage of the Instead libraries apply for a rebate of a percentage of the GST/HST paid on costsGST/HST paid on costs

Percentages vary (see “MUSH Sector Rebates” slide)Percentages vary (see “MUSH Sector Rebates” slide)

E.g. tickets to fundraising events with donation receipt, sales of E.g. tickets to fundraising events with donation receipt, sales of goods/services at a fundraiser, membershipsgoods/services at a fundraiser, memberships

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Borrowing privileges (e.g., library card) exempt Borrowing privileges (e.g., library card) exempt supply for GST purposes; will remain exempt under supply for GST purposes; will remain exempt under HSTHST

Fines for overdue materials not subject to GST and Fines for overdue materials not subject to GST and will not be subject to HSTwill not be subject to HST

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Harmonized Sales Tax - Considerations

Ontario BudgetMarch 26, 2009 Should we

review our treatment of

the GST versus the new HST?

What about tax saving

opportunities?

What are the differences

between GST and HST?

HarmonizationJuly 1, 2010

How much will it cost?

Will we need to hire and budget

for external resources?

How will our cash flow be

affected?

Will our IT

systems be

ready?

Should we provide

GST refresher training?

Can our software handle the

required changes? Do we need an

internal implementation

Committee?

What is our implementation

strategy?

Should we develop a detailed

implementation plan?

7© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

HST – General OverviewHST – General Overview

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HST – General Overview

Effective July 1, 2010Effective July 1, 2010

Ontario PST substantively repealedOntario PST substantively repealed

HST comes into force for supplies “made in” OntarioHST comes into force for supplies “made in” Ontario

13% (5% federal component; 8% provincial component)13% (5% federal component; 8% provincial component)

Generally same rules and tax base as GST; some differencesGenerally same rules and tax base as GST; some differences

HST applies to many items not subject to PST, e.g. most HST applies to many items not subject to PST, e.g. most servicesservices

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Reduced compliance:Reduced compliance:

No more Purchase Exemption CertificatesNo more Purchase Exemption Certificates

Reduced complexityReduced complexity

One taxOne tax

One return, one administration (CRA), one auditOne return, one administration (CRA), one audit

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HST same as GST subject to following exceptionsHST same as GST subject to following exceptions

Tax ratesTax rates

Point-of-sale rebates for books and newspapersPoint-of-sale rebates for books and newspapers

Input tax credit restrictionsInput tax credit restrictions

5% GST only collected on commercial imports (self-assessment 5% GST only collected on commercial imports (self-assessment may be required)may be required)

Public sector body rebates calculated at different ratesPublic sector body rebates calculated at different rates

New housing rebates calculated on different amountsNew housing rebates calculated on different amounts

Province of Ontario to pay HSTProvince of Ontario to pay HST

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Currently not subject to PST; will become subject to Currently not subject to PST; will become subject to 13% HST:13% HST:

Real property leases, licencesReal property leases, licences

Real property contracts (construction, management, Real property contracts (construction, management, maintenance)maintenance)

Energy (gas, electricity)Energy (gas, electricity)

Energy re-charged to tenants as rentEnergy re-charged to tenants as rent

Lease inducementsLease inducements

Intangibles (rights) Intangibles (rights)

Services in general (consulting, laundry, dry cleaning)Services in general (consulting, laundry, dry cleaning)

Sales to provincial governmentsSales to provincial governments

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PST HoldoversPST Holdovers

8% Ontario Retail Sales Tax on insurance premiums 8% Ontario Retail Sales Tax on insurance premiums will be will be retainedretained under HST regime under HST regime

Self-assessment requirement will remain to the extent that risk Self-assessment requirement will remain to the extent that risk relates to Ontario and 8% tax not charged on premiumsrelates to Ontario and 8% tax not charged on premiums

Insurance premiums remain exempt for GST purposesInsurance premiums remain exempt for GST purposes

10% Excise Tax on insurance placed with non-10% Excise Tax on insurance placed with non-authorized insurer will not be affected by Ontario or authorized insurer will not be affected by Ontario or B.C. harmonizationB.C. harmonization

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HST – General Overview– ITC “Recapture”

Libraries are generally “Public Sector Bodies”Libraries are generally “Public Sector Bodies”

Public Sector Bodies not required to Public Sector Bodies not required to “recapture” 8% provincial component of ITCs “recapture” 8% provincial component of ITCs claimed on certain costs:claimed on certain costs:

Energy, exception for farms or used to produce TPP for saleEnergy, exception for farms or used to produce TPP for sale

Telecommunication services other than internet or toll-free Telecommunication services other than internet or toll-free numbersnumbers

Vehicles (less than 3,000 kg), parts, certain services, fuel to Vehicles (less than 3,000 kg), parts, certain services, fuel to powerpower

Food, beverages, entertainmentFood, beverages, entertainment


Differences GST/HST

Mush Sector Rebates

Differences GST/HST

Mush Sector Rebates

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Differences Between GST and HST

GSTGST HSTHST

Federal book rebate for 100% of the Federal book rebate for 100% of the GST component of HST paid on GST component of HST paid on books (but not newspapers) by Public books (but not newspapers) by Public LibrariesLibraries

Point-of-sale rebate for 8% provincial Point-of-sale rebate for 8% provincial component of HST on purchases of component of HST on purchases of books and newspapers at any stage in books and newspapers at any stage in distribution chaindistribution chain

New input tax credit (ITC) recapture New input tax credit (ITC) recapture for Large Businessesfor Large Businesses

PSBs, including libraries, not subject to PSBs, including libraries, not subject to these recapture rulesthese recapture rules

MUSH partial rebates – Different ratesMUSH partial rebates – Different ratesHow to track and claim will add How to track and claim will add administrative complexity!administrative complexity!

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MUSH Sector – HST (Partial) Rebate Rates

EntitiesEntities Rebates for 5% Rebates for 5% Federal ComponentFederal Component

Rebates for 8% Rebates for 8% Provincial Provincial

ComponentComponent

MunicipalitiesMunicipalities 100%100% 78%78%

Universities and CollegesUniversities and Colleges 67%67% 78%78%

SchoolsSchools 68%68% 93%93%

HospitalsHospitals 83%83% 87%87%

Charities and Qualifying NPOsCharities and Qualifying NPOs 50%50% 82%82%

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Designation/Determination as Municipality

Some libraries may have applied for designation or Some libraries may have applied for designation or determination as a municipality for GST purposesdetermination as a municipality for GST purposes

100% rebate for GST paid by municipalities effective 100% rebate for GST paid by municipalities effective February 1, 2004February 1, 2004

Libraries that are not designated/determined as Libraries that are not designated/determined as municipalities: entitled to 50% rebate as “qualifying municipalities: entitled to 50% rebate as “qualifying NPO??NPO??

Consider whether advantageous to apply for Consider whether advantageous to apply for municipal designation or determinationmunicipal designation or determination

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Designation/Determination as Municipality

Municipality:Municipality:

Incorporated city, town, village, township, district, county, rural Incorporated city, town, village, township, district, county, rural municipality or other incorporated municipal bodymunicipality or other incorporated municipal body

Public library that is a separate entity but controlled by a Public library that is a separate entity but controlled by a municipality may apply to Minister of National Revenue to be municipality may apply to Minister of National Revenue to be determineddetermined as a municipality as a municipality

Can also apply to be Can also apply to be designateddesignated as a municipality in respect of as a municipality in respect of certain services that it deliverscertain services that it delivers

Being a Municipality is a Good Thing:Being a Municipality is a Good Thing:

Federal rebate rate 100% vs. 50%Federal rebate rate 100% vs. 50%

But provincial rebate rate 79% vs. 82%But provincial rebate rate 79% vs. 82%


HST – Considerations for Implementation StrategyHST – Considerations for Implementation Strategy

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HST – Considerations for Implementation Strategy

HST will affect and require:HST will affect and require:

Internal operating budgetsInternal operating budgets

IT resourcesIT resources

Staff trainingStaff training

Improved internal controlsImproved internal controls

Cost of errors increases from 5% to 13%Cost of errors increases from 5% to 13%

Not just a rate change as in the past!Not just a rate change as in the past!

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Cost impactsCost impacts

Pricing requirements: will you have to increase any prices?Pricing requirements: will you have to increase any prices?

Cash flow - e.g. tax on premises rent will increase to 13% Cash flow - e.g. tax on premises rent will increase to 13% from 5%from 5%

Any planning opportunities?Any planning opportunities?

Systems changesSystems changes

Sales, purchasing and accounting systems all affectedSales, purchasing and accounting systems all affected

Tax tables / matricesTax tables / matrices

Tracking two taxesTracking two taxes

Tracking two rebate ratesTracking two rebate rates

Imported vs. domestic sourced purchasesImported vs. domestic sourced purchases

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Allocation methodologies – commercial vs. exempt use – Allocation methodologies – commercial vs. exempt use – is GST charged on any supplies?is GST charged on any supplies?

Staff trainingStaff training

Existing GST knowledgeExisting GST knowledge

New HST reporting obligationsNew HST reporting obligations

Possible electronic filing requirementsPossible electronic filing requirements

Seek designation or determination as a municipality?? Seek designation or determination as a municipality?? (100% rebate of federal component)(100% rebate of federal component)


HST – Impact on Libraries and Other NPOs


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Goal of rebates for NPOs, charities, MUSH sector -- Goal of rebates for NPOs, charities, MUSH sector -- generally result in neutral impactgenerally result in neutral impact

Elimination of non-recoverable PST will reduce costs Elimination of non-recoverable PST will reduce costs to libraries’ suppliers, e.g.: to libraries’ suppliers, e.g.:

ConstructionConstruction

TransportationTransportation

ManufacturingManufacturing

Possible pass-through of suppliers’ savings??Possible pass-through of suppliers’ savings??

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Benefits (savings): Removes “sunk PST cost” inBenefits (savings): Removes “sunk PST cost” in

Computer hardware and softwareComputer hardware and software

Telecommunications Telecommunications

Most purchases of furnishings and equipmentMost purchases of furnishings and equipment

Office suppliesOffice supplies

New constructionNew construction

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Additional Tax Cost:Additional Tax Cost:

Libraries planning new construction or renovations (review tax Libraries planning new construction or renovations (review tax clauses in contracts)clauses in contracts)

Premises rent (now 13% instead of 5%)Premises rent (now 13% instead of 5%)

Services (cleaning, landscaping, snow-clearing, etc)Services (cleaning, landscaping, snow-clearing, etc)

Land acquisitions not used in commercial activitiesLand acquisitions not used in commercial activities

Professional services, consulting feesProfessional services, consulting fees

Rebate rates designed to “neutralize” additional tax Rebate rates designed to “neutralize” additional tax costcost

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Cash flow consideration for purchases currently Cash flow consideration for purchases currently PST exempt that will be subject to 13% HST PST exempt that will be subject to 13% HST

““Inventory”, other than printed and recorded books: Inventory”, other than printed and recorded books: music, movies, etc.music, movies, etc.

Real property leasesReal property leases

Purchase of real propertyPurchase of real property

Repairs to real propertyRepairs to real property

SignsSigns

Custom softwareCustom software

ServicesServices

Municipalities or charity/NPO rebate may be Municipalities or charity/NPO rebate may be availableavailable


Book RebatesBook Rebates

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GST (October 1996) and HST Book Rebates

Existing GST book rebate available for:Existing GST book rebate available for:

printed books (certain exclusions);printed books (certain exclusions);

audio recordings (e.g. cassette, CD) of books;audio recordings (e.g. cassette, CD) of books;

bound or unbound printed versions of religious scripturesbound or unbound printed versions of religious scriptures

Cannot be acquired for resale (“sale” includes gift)Cannot be acquired for resale (“sale” includes gift)

Not a point-of-sale rebate: GST is paid up front then Not a point-of-sale rebate: GST is paid up front then claimed using the public service bodies rebate formclaimed using the public service bodies rebate form

HST: Ontario portion (8%) will be point-of-sale HST: Ontario portion (8%) will be point-of-sale rebate; federal portion (5%) will continue to be post-rebate; federal portion (5%) will continue to be post-purchase rebatepurchase rebate

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GST Book Rebate and “Combined Supplies”

Printed book + another item packaged together and Printed book + another item packaged together and sold for single price: may be a single, new product sold for single price: may be a single, new product that is not a “printed book” as definedthat is not a “printed book” as defined

Software (taxable) + manual (book?): if manual is Software (taxable) + manual (book?): if manual is “incidental” to software, entire product considered “incidental” to software, entire product considered software and taxable; no rebate for manual software and taxable; no rebate for manual

Book + music CD sold for single price: likely neither Book + music CD sold for single price: likely neither is incidental to the other; price must be allocated is incidental to the other; price must be allocated between the book and the CDbetween the book and the CD

Only part attributable to book would give rise to Only part attributable to book would give rise to rebates rebates

Will Ontario adopt same administrative policy?Will Ontario adopt same administrative policy?


Transitional RulesTransitional Rules

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HST Transitional Rules - Timeline

Harmonization

July 1, 2010Release Date

(October 14, 2009)

No HST Collected on Prepayments; Recipient Self-Assesses on

Provincial Portion if Cannot Claim Full ITCs (e.g. FIs, PSBs)

Suppliers Collect HST on Prepayments

October 15, 2009 to April 30, 2010

May 1, 2010 to June 30, 2010

HST Applies

to Supplies

No HST

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HST Transitional Rules – Key Dates

October 15, 2009 – April 30, 2010: Self-assessment October 15, 2009 – April 30, 2010: Self-assessment of provincial component of HST by entities (e.g., of provincial component of HST by entities (e.g., libraries and other PSBs) that cannot recover full libraries and other PSBs) that cannot recover full ITCs on consideration paid for goods/services ITCs on consideration paid for goods/services provided after June 30, 2010.provided after June 30, 2010.

May 1 – June 30, 2010: Suppliers pre-collect HST May 1 – June 30, 2010: Suppliers pre-collect HST on goods/services to be provided after June 2010. on goods/services to be provided after June 2010.

Equipment leases, maintenance agreements, licences of Equipment leases, maintenance agreements, licences of softwaresoftware

July 1, 2010: HST implementation date. HST July 1, 2010: HST implementation date. HST generally applies to consumption on or after this generally applies to consumption on or after this date.date.

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HST Transitional Rules – Self-Assessment

General Rule: Self-assess HST if General Rule: Self-assess HST if

Consideration payable after October 14, 2009 and before May 1, Consideration payable after October 14, 2009 and before May 1, 2010 2010 andand

Goods or services delivered on or after July 1, 2010Goods or services delivered on or after July 1, 2010

No self-assessment if No self-assessment if

Purchaser is a consumer; orPurchaser is a consumer; or

Purchaser is a business entitled to a full input tax creditPurchaser is a business entitled to a full input tax credit

Libraries pre-paying for goods to be delivered or Libraries pre-paying for goods to be delivered or services to be performed on or after July 1, 2010 may services to be performed on or after July 1, 2010 may be required to self-assess 8% provincial component be required to self-assess 8% provincial component of HSTof HST

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HST Transitional Rules – Sale of Goods

HST applies if goods delivered HST applies if goods delivered andand ownership ownership transfers after June 30, 2010transfers after June 30, 2010

Prepayments for post-June 2010 sale and delivery:Prepayments for post-June 2010 sale and delivery:

October 15, 2009 – April 30, 2010: supplier collects GST only; October 15, 2009 – April 30, 2010: supplier collects GST only; PSB purchaser self-assesses 8% provincial component and PSB purchaser self-assesses 8% provincial component and remits in return that includes July 1remits in return that includes July 1

May 1, 2010 – June 30, 2010: Supplier pre-collects HSTMay 1, 2010 – June 30, 2010: Supplier pre-collects HST

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HST Transitional Rules – Sale of Goods

Delivery orOwnershiptransferred

July 1, 2010

Delivery andOwnershiptransferred

Oct 14, 2009

May 1, 2010

1) Basic Rule: focus on delivery and ownership

2) Prepayments:

i. Vendors charge HST on consideration billed or paid on or after May 1, 2010

ii. After October 14, 2009 and before May 1, 2010: PSB purchaser self-assesses 8% provincial component (unless acquired for exclusive use in commercial activities)

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HST – Transitional Rules

SubscriptionsSubscriptions

Newspapers, magazines and similar periodicalsNewspapers, magazines and similar periodicals

No HST if paid on or before July 1, 2010No HST if paid on or before July 1, 2010

No self-assessment required even if subscription period includes No self-assessment required even if subscription period includes periods after June 2010periods after June 2010

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HST Transitional Rules – Non-Residential Real Property Purchases

BothBoth ownership ownership andand possession transfer to possession transfer to purchaser after June 30, 2010: HST appliespurchaser after June 30, 2010: HST applies

EitherEither ownership ownership oror possession transfers to possession transfers to purchaser before July 1, 2010: GST appliespurchaser before July 1, 2010: GST applies

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HST Transitional Rules – Real PropertyLease, Licence, Similar Arrangement

HST applies to portion of lease interval that occurs HST applies to portion of lease interval that occurs after June 30, 2010after June 30, 2010

Lease for January 1, 2010 – December 31, 2010; lease Lease for January 1, 2010 – December 31, 2010; lease payments due 1payments due 1stst of each month: of each month:

GST only on first 6 lease paymentsGST only on first 6 lease payments

HST on lease payments beginning July 1, 2010HST on lease payments beginning July 1, 2010

Exception: payment for lease interval that begins Exception: payment for lease interval that begins before July 2010 and ends before July 2010 and ends before July 31, 2010before July 31, 2010

Lease interval June 15, 2010 – July 15, 2010; paid Lease interval June 15, 2010 – July 15, 2010; paid June 15, 2010June 15, 2010

GST at 5% on full amount; no HSTGST at 5% on full amount; no HST

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HST Transitional Rules – Real Property Leases

Exception where lease interval begins before Exception where lease interval begins before July 2010 and ends July 2010 and ends before July 31, 2010:before July 31, 2010:

Lease for June 1 – July 31, 2010; 1 lease payment due Lease for June 1 – July 31, 2010; 1 lease payment due June 1, 2010June 1, 2010

Lease interval began before July 2010 but Lease interval began before July 2010 but does not end beforedoes not end before July 31, 2010July 31, 2010

HST applies to portion of lease payment attributable to HST applies to portion of lease payment attributable to July (50%)July (50%)

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HST Transitional Rules – Leases, Rentals

Rentalperiod

July 1, 2010

Rentalperiod

Oct 14, 2009

May 1, 2010

1) Basic Rule: HST applied to portion of rental period post June 2010

2) Exception: GST (not HST) if period starts before July 2010 and ends before July 31, 2010

3) Prepayments:

i. Vendor charges HST on consideration due or paid on or after May 1, 2010 for any period or portion thereof relating to after June, 2010

ii. After October 14, 2009 and before May 1, 2010: purchaser self-assesses 8% provincial component if not acquired for exclusive use in commercial activities, or if ITCs restricted

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HST Transitional Rules - Services

Also includes (non-lifetime) memberships and admissionsAlso includes (non-lifetime) memberships and admissions

Services performed after June 30, 2010: HST applies (exception Services performed after June 30, 2010: HST applies (exception if 90% of service performed before July 1, 2010)if 90% of service performed before July 1, 2010)

HST applies to portion of service performed after June 2010HST applies to portion of service performed after June 2010

April 1, 2010 July 1, 2010 October 31, 2010

Cleaning Services

* InvoiceGST HST

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Exception: No HST if “all or substantially all” (90%) of Exception: No HST if “all or substantially all” (90%) of service performed before July 1, 2010service performed before July 1, 2010

GST GST onlyonly on entire invoice on entire invoice

April 1, 2010

July 1, 2010

August 1, 2010

Cleaning Services

* InvoiceGST

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ServicesPerformed

July 1, 2010

ServicesPerformed

Oct 14, 2009

May 1, 2010

1) Basic Rule: focus on when services are performed

2) Special Rule: If ≥90% performed before July 2010, GST (not HST) applies

3) Prepayments:

i. Vendor charges HST on consideration billed or paid on or after May 1, 2010 for services performed after June 2010

ii. After October 14, 2009 and before May 1, 2010: purchaser self-assesses 8% provincial component if not acquired for exclusive use in commercial activities, or if ITCs restricted

45


Non-Residential Real Property Contracts - Progress Payments

Contract to construct, renovate, etc. real property: Contract to construct, renovate, etc. real property: HST applies to progress payments to extent HST applies to progress payments to extent reasonably attributable to property delivered / reasonably attributable to property delivered / services performed after June 2010services performed after June 2010

ExceptionException to general rule for collection of HST on to general rule for collection of HST on prepayments: If progress payments for post-June prepayments: If progress payments for post-June 2010 work are due or paid 2010 work are due or paid after October 14, 2009after October 14, 2009 and and before July 1, 2010: supplier must charge HSTbefore July 1, 2010: supplier must charge HST

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HST Transitional Rules – Intangible Property

Intellectual property; contractual rightsIntellectual property; contractual rights

E.g. software licence for 2010 due on January 1, 2010E.g. software licence for 2010 due on January 1, 2010

ORST applies to 50% (January through June); ORST applies to 50% (January through June); vendor should collect PST on only 50% of chargevendor should collect PST on only 50% of charge

Library that is licensee required to self-assess 8% Library that is licensee required to self-assess 8% provincial component of HST for remaining 6 months provincial component of HST for remaining 6 months (if not entitled to recover full ITCs)(if not entitled to recover full ITCs)

Library entitled to claim rebate for provincial Library entitled to claim rebate for provincial component component

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HST Transitional Rules – Intangible Property

E.g. software licence for May 1, 2010 – April 30, 2011 E.g. software licence for May 1, 2010 – April 30, 2011 due on May 1, 2010due on May 1, 2010

Licensor should collect ORST on 2/12Licensor should collect ORST on 2/12thth of charge, and of charge, and HST on 10/12HST on 10/12thsths

No self-assessment requirement – HST has been No self-assessment requirement – HST has been pre-paidpre-paid

48


HST Transitional Rules – Services, Intangibles

Libraries that pay annual contracts Libraries that pay annual contracts before May 2010before May 2010

E.g. cleaning, maintenance, HVACE.g. cleaning, maintenance, HVAC

Service provider should charge GST onlyService provider should charge GST only

Service provider should not charge any HSTService provider should not charge any HST

Library required to self-assess 8% provincial Library required to self-assess 8% provincial component (because cannot recover full input tax component (because cannot recover full input tax credits)credits)

Library claims rebate (78% if municipality) for Library claims rebate (78% if municipality) for provincial component self-assessedprovincial component self-assessed

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Self-Assessment Calculation

Example: $10,000 building maintenance contract, Example: $10,000 building maintenance contract, April 1 2010 – March 31, 2011, paid April 1, 2010April 1 2010 – March 31, 2011, paid April 1, 2010

Supplier charges 5% GST on entire amount ($500)Supplier charges 5% GST on entire amount ($500)

Supplier does not charge PST or HST on any portion Supplier does not charge PST or HST on any portion of contractof contract

Library self-assesses $10,000 x (9/12) x 8% = $600Library self-assesses $10,000 x (9/12) x 8% = $600

78% municipalities rebate = $600 x 78% = $46878% municipalities rebate = $600 x 78% = $468

Offset rebate against tax self-assessed; net to remit Offset rebate against tax self-assessed; net to remit = $132= $132

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HST Transitional Rules – “Continuous Supplies”

Includes property or services supplied by means of Includes property or services supplied by means of

Wire, pipeline or similar conduitWire, pipeline or similar conduit

Satellite or other telecommunications facilitySatellite or other telecommunications facility

ExamplesExamples

Natural gas, ElectricityNatural gas, Electricity

Cable television, Satellite televisionCable television, Satellite television

Cellular telephone servicesCellular telephone services

Vendor collects HST on that part of the supply that reasonable Vendor collects HST on that part of the supply that reasonable relates to post-June 30, 2010relates to post-June 30, 2010

Alternative: consideration pro-rated by number of days in billing Alternative: consideration pro-rated by number of days in billing periodperiod

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Self-Assessed HST – Timing of Remittance

Pre-collected HST remitted in “stages”Pre-collected HST remitted in “stages”

5% GST component remitted in GST return for reporting period 5% GST component remitted in GST return for reporting period during which collectedduring which collected

8% provincial component remitted in HST return for reporting 8% provincial component remitted in HST return for reporting period that includes July 1, 2010 (due August 31, 2010 or period that includes July 1, 2010 (due August 31, 2010 or October 31, 2010)October 31, 2010)

Same principle for rebate claims for HST i.e. claim Same principle for rebate claims for HST i.e. claim rebate for 5% GST component first, and rebate for 8% rebate for 5% GST component first, and rebate for 8% provincial component in claim for period that provincial component in claim for period that includes July 1, 2010includes July 1, 2010

52


HST Transitional Rules – Considerations

Is system prepared to start charging and paying proper amount Is system prepared to start charging and paying proper amount of tax on May 1, 2010 taking into account:of tax on May 1, 2010 taking into account:

Nature of supplyNature of supply

Place of supply (rules not yet released)Place of supply (rules not yet released)

Transitional rulesTransitional rules

Point of sale rebatesPoint of sale rebates

Is system prepared to start self-assessing provincial component Is system prepared to start self-assessing provincial component of HST for pre-payments before May 1, 2010?of HST for pre-payments before May 1, 2010?

Can invoicing/payables system deal with GST, HST and PST?Can invoicing/payables system deal with GST, HST and PST?

Is the system taking into account self-assessments?Is the system taking into account self-assessments?

Are suppliers charging PST in error on prepayments?Are suppliers charging PST in error on prepayments?

Should a refund claim be filed for PST paid in error?Should a refund claim be filed for PST paid in error?

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Transitional Tips and Traps

Annual contracts subject to PST (e.g. software Annual contracts subject to PST (e.g. software maintenance) paid before May 1, 2010: did supplier maintenance) paid before May 1, 2010: did supplier charge PST on post-June period? If so, apply for charge PST on post-June period? If so, apply for refund for 6 months’ portionrefund for 6 months’ portion

Even if PST was charged in error and refund applied Even if PST was charged in error and refund applied for, library must self-assess the 8% provincial for, library must self-assess the 8% provincial component of HST component of HST

Keep file of copies of supplier invoices straddling Keep file of copies of supplier invoices straddling implementation; double-check in September/October implementation; double-check in September/October for self-assessment and refunds of PST over-chargedfor self-assessment and refunds of PST over-charged

54 © 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.

All rights reserved.

ImportationsImportations

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HST and Goods Imported into Ontario

Affects libraries and other PSBsAffects libraries and other PSBs

Self-assessment of Ontario component of HST may be required Self-assessment of Ontario component of HST may be required on international / interprovincial importationson international / interprovincial importations

Only 5% GST to be collected at international borderOnly 5% GST to be collected at international border

Generally, self-assessment required where full ITC not Generally, self-assessment required where full ITC not recoverable had HST been paid on input (affects PSBs)recoverable had HST been paid on input (affects PSBs)

Watch out for services not previously subject to PST, e.g. Watch out for services not previously subject to PST, e.g. electricityelectricity

Also applies to prepayments for goods/services to be delivered Also applies to prepayments for goods/services to be delivered after June 30, 2010after June 30, 2010

Self-assessment of full 13% may be required on imported Self-assessment of full 13% may be required on imported servicesservices


Planning Points – Purchases, Sales, Cash Flow

Planning Points – Purchases, Sales, Cash Flow

57


HST – General Planning Points

Conduct impact analysis to estimateConduct impact analysis to estimate

net cost to organization and net cost to organization and

changes to funding requirementschanges to funding requirements

Plan for modifications to tax codes in systemsPlan for modifications to tax codes in systems

Review impact on long-term contracts and consider options for Review impact on long-term contracts and consider options for renegotiationrenegotiation

Consider deferring purchases of PST-taxable items (computer Consider deferring purchases of PST-taxable items (computer systems, administrative equipment, furnishings) – take systems, administrative equipment, furnishings) – take advantage of post-June 30 rebatesadvantage of post-June 30 rebates

Accelerate purchases of PST-exempt items (custom software) to Accelerate purchases of PST-exempt items (custom software) to avoid additional 8% cost (before rebates)avoid additional 8% cost (before rebates)

Ensure consultants’ and professional fees are invoiced by June Ensure consultants’ and professional fees are invoiced by June 30, 2010 (subject to transitional rules)30, 2010 (subject to transitional rules)

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Planning – Purchases

Cash flow implications: tax charged by many Cash flow implications: tax charged by many suppliers will increase by 8%; partly or fully suppliers will increase by 8%; partly or fully recoverable by rebates but must be fundedrecoverable by rebates but must be funded

Lease (as lessee) of real propertyLease (as lessee) of real property

Purchases of real property Purchases of real property

Maintenance and repairs to real propertyMaintenance and repairs to real property

SignsSigns

Custom-written softwareCustom-written software

Professional services (accounting, property management, Professional services (accounting, property management, security, services related to real property)security, services related to real property)

59


Planning – Purchases

Lease instead of purchase before July 2010Lease instead of purchase before July 2010

Reduces PST burden from 8% of full purchase price to 8% of Reduces PST burden from 8% of full purchase price to 8% of lease paymentslease payments

Improves cash flowImproves cash flow

60


Planning – Capital Projects

Long-term capital project straddling July 1, 2010Long-term capital project straddling July 1, 2010

Entered into pre-announcement date Entered into pre-announcement date

Contract price reflects 8% Ontario PST cost to Contract price reflects 8% Ontario PST cost to contractor of materials used in contractcontractor of materials used in contract

Renegotiate contract to obtain benefit of elimination Renegotiate contract to obtain benefit of elimination of PST (8% of materials burden? 2% of overall of PST (8% of materials burden? 2% of overall contract price?) after June 30, 2010contract price?) after June 30, 2010

61



Review existing tax clausesReview existing tax clauses

e.g. “Any decrease in costs to Contractor due to changes in e.g. “Any decrease in costs to Contractor due to changes in taxes after bid closing shall decrease the Contract Price taxes after bid closing shall decrease the Contract Price accordingly”accordingly”

Post-implementation Post-implementation

If contract price is “inclusive of all taxes except Value-Added If contract price is “inclusive of all taxes except Value-Added Taxes”, is definition of “Value-Added Taxes” broad enough to Taxes”, is definition of “Value-Added Taxes” broad enough to include HST?include HST?

If not, consider amendment to contract If not, consider amendment to contract

62



Review to see if tax-inclusive or tax-extraReview to see if tax-inclusive or tax-extra

Which is more beneficial?Which is more beneficial?

Contracts that straddle implementationContracts that straddle implementation

Revisit where opportunities exist, clarify wordingRevisit where opportunities exist, clarify wording

Review tax clausesReview tax clauses

Consider effect on damages / termination payments: if tax-Consider effect on damages / termination payments: if tax-inclusive, need to be grossed up to account for additional 8% inclusive, need to be grossed up to account for additional 8%

Is rate of tax charged correct according to “place of Is rate of tax charged correct according to “place of supply” rules?supply” rules?

63 © 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.

All rights reserved.

Planning for Implementation – Processes and Procedures


64



Systems update to accommodate singe tax Systems update to accommodate singe tax return return

Templates need updating – expense reports, Templates need updating – expense reports, matricesmatrices

Systems testing needed after implementationSystems testing needed after implementation

TrainingTraining

Record retentionRecord retention

65



Establish an implementation committeeEstablish an implementation committee

Consider impact on:Consider impact on:

Budgets, revenues, cash flowBudgets, revenues, cash flow

Sales, purchasing and other systemsSales, purchasing and other systems

Documentation Documentation

Pricing strategiesPricing strategies

Consider implementingConsider implementing

Internal communications strategyInternal communications strategy

Internal learning strategyInternal learning strategy

66



Incorporate into budgeting processIncorporate into budgeting process

Review existing contracts:Review existing contracts:

Sharing of any PST savings?Sharing of any PST savings?

Adding Ontario HST referencesAdding Ontario HST references

Government contractsGovernment contracts

New contracts and bidsNew contracts and bids

Review provisions for damages / termination Review provisions for damages / termination paymentspayments

67



Sales (POS, Billing and A/R Systems)Sales (POS, Billing and A/R Systems)

Do tax coding and invoices need to be adjusted to take into Do tax coding and invoices need to be adjusted to take into consideration different rates of tax: 5%, 13%? consideration different rates of tax: 5%, 13%?

Does the current ORST rate need to remain in the system for a Does the current ORST rate need to remain in the system for a transitional period to take into consideration adjustments post transitional period to take into consideration adjustments post implementation?implementation?

68



Purchases (AP systems)Purchases (AP systems)

System must be capable of handling different rebate percentages for System must be capable of handling different rebate percentages for federal vs. provincial component of HSTfederal vs. provincial component of HST

Critical for book purchases: Programming required to track provincial Critical for book purchases: Programming required to track provincial component of HST (component of HST (point-of-salepoint-of-sale rebate for 8%) vs. federal component rebate for 8%) vs. federal component ((post-salepost-sale rebate for 5%) rebate for 5%)

Ensure that federal book rebate claimed for 5% only, not 13%!Ensure that federal book rebate claimed for 5% only, not 13%!

Ensure that federal and provincial rebates claimed for other qualifying Ensure that federal and provincial rebates claimed for other qualifying expenses at appropriate ratesexpenses at appropriate rates

Employee expense reports templates will need modificationEmployee expense reports templates will need modification

Current process to self-assess ORST needs to be amended; some self-Current process to self-assess ORST needs to be amended; some self-assessment of Ontario component of HST likely requiredassessment of Ontario component of HST likely required

69



Other Preparation Other Preparation

Customer literature? Website information?Customer literature? Website information?

Pricing information?Pricing information?

Customer/Landlord/Tenant communication?Customer/Landlord/Tenant communication?

How to approach suppliers, contractors: responsibility?How to approach suppliers, contractors: responsibility?


Last Look at PSTLast Look at PST

71


As The Curtain Rings Down on the PST . . .

Last chance to apply for refundsLast chance to apply for refunds

Audits, AssessmentsAudits, Assessments

4-year window4-year window

When will they stop auditing PST?When will they stop auditing PST?

Recent appeal of TTC case by Ontario: not giving up easilyRecent appeal of TTC case by Ontario: not giving up easily

72


HST Links

KPMGKPMG

http://http://www.kpmg.ca/en/ms/pstgstwww.kpmg.ca/en/ms/pstgst//

Ontario Ministry of RevenueOntario Ministry of Revenue

http://www.rev.gov.on.ca/en/taxchange/index.htmlhttp://www.rev.gov.on.ca/en/taxchange/index.html

Draft provincial legislation and other official Draft provincial legislation and other official documentsdocuments

http://www.fin.gov.on.ca/en/index.htmlhttp://www.fin.gov.on.ca/en/index.html

http://www.kpmg.ca/en/ms/pstgst/



http://www.rev.gov.on.ca/en/taxchange/index.html

http://www.fin.gov.on.ca/en/index.html


Information is current to February 19, 2010. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Presenter’s contact detailsPresenter’s contact details

Barbara WarrenBarbara Warren

KPMG LLPKPMG LLP

(416) 777-3541(416) 777-3541

[email protected]

www.kpmg.ca

KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity.

mailto:[email protected]

http://www.kpmg.ca/

barbara warren february 25, 2010 barbara warren february 25, 2010 indirect tax harmonized sales tax...

Documents

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ontario pst