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Ontario Sales Tax Ontario Sales Tax HarmonizationHarmonization
Horne LLPHorne LLP
March 31March 31stst, 2010, 2010
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OutlineOutline
BackgroundBackground OverviewOverview GST / HST BasicsGST / HST Basics Transition RulesTransition Rules Recaptured ITC’sRecaptured ITC’s New Place of Supply RulesNew Place of Supply Rules Winding Down the RSTWinding Down the RST Preparing for HSTPreparing for HST Mandatory Electronic FilingMandatory Electronic Filing Questions and AnswersQuestions and Answers
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BackgroundBackground
Implementation of GST / QST / HSTImplementation of GST / QST / HST Comprehensive Tax Reform in Ontario and B.C.Comprehensive Tax Reform in Ontario and B.C.
Corporate tax cutsCorporate tax cuts Personal tax cutsPersonal tax cuts Transitional paymentsTransitional payments
Sales Tax HarmonizationSales Tax Harmonization March 28March 28thth, 2009 – Budget Announcement, 2009 – Budget Announcement October 14October 14thth, 2009 – General Transition Rules, 2009 – General Transition Rules December 15December 15thth, 2009 – Federal and Ontario Bills Pass, 2009 – Federal and Ontario Bills Pass February 1February 1stst, 2010 – Recapture of ITC’s, 2010 – Recapture of ITC’s February 25February 25thth, 2010 – New Place of Supply Rules, 2010 – New Place of Supply Rules
Future?Future? Information:Information:
CanadaCanada www.cra.gc.ca/harmonizationwww.cra.gc.ca/harmonization OntarioOntario www.ontario.ca/taxchangewww.ontario.ca/taxchange
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Overview of HSTOverview of HST
Single Rate Value Added Tax Effective Single Rate Value Added Tax Effective July 1 July 1stst, 2010, 2010
13% rate (8% OVAT, 5% GST)13% rate (8% OVAT, 5% GST) Administered by CRAAdministered by CRA Same base and structure as GSTSame base and structure as GST
Exceptions?Exceptions? Point of Sale RebatesPoint of Sale Rebates Recaptured ITC’sRecaptured ITC’s Continuing TaxesContinuing Taxes New Housing RebateNew Housing Rebate Loss of Vendor CompensationLoss of Vendor Compensation
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Point of Sale RebatesPoint of Sale Rebates
Children’s clothing and footwearChildren’s clothing and footwear Children’s car seats and car booster seatsChildren’s car seats and car booster seats DiapersDiapers Feminine hygiene productsFeminine hygiene products Books (including audio)Books (including audio) Printed newspapersPrinted newspapers Prepared food products sold for $4 or lessPrepared food products sold for $4 or less
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Recaptured ITC’sRecaptured ITC’s
Applies to large businesses, financial Applies to large businesses, financial institutions, and related entities institutions, and related entities
Restricts OVAT portion of ITC for:Restricts OVAT portion of ITC for: EnergyEnergy Telecommunications servicesTelecommunications services Road vehicles less than 3,000 kilogramsRoad vehicles less than 3,000 kilograms Food, beverage and entertainment expensesFood, beverage and entertainment expenses
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Continuing Taxes (ORST?)Continuing Taxes (ORST?)
AlcoholAlcohol Transient accommodationTransient accommodation Private sales of specified vehicles not Private sales of specified vehicles not
subject to GSTsubject to GST Insurance Premiums (except auto)Insurance Premiums (except auto)
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New Housing Rebate New Housing Rebate
Refunds for buyers of:Refunds for buyers of: New homesNew homes New residential rental propertyNew residential rental property
OVAT refund of up to $ 24,000OVAT refund of up to $ 24,000
Regardless of the price of new homeRegardless of the price of new home
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GST / HST BasicsGST / HST Basics
RecipientRecipient -- person liable to pay consideration for the person liable to pay consideration for the supplysupply
SupplySupply -- provision of property or a service in any provision of property or a service in any manner, including sale, transfer, barter, manner, including sale, transfer, barter,
exchange, license, rental, lease, exchange, license, rental, lease, gift or dispositiongift or disposition
ConsiderationConsideration -- includes any amount that is payable includes any amount that is payable for a supply by operation of lawfor a supply by operation of law
GST/HST is payable by the GST/HST is payable by the recipientrecipient on the earlier of: on the earlier of:
The day the The day the considerationconsideration for a for a supplysupply is paid, and is paid, and The day the The day the considerationconsideration for the supply becomes due for the supply becomes due
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Consideration Becomes DueConsideration Becomes Due
Earliest of the following days:Earliest of the following days: The date of the invoice for the amount of the The date of the invoice for the amount of the
supply;supply; The day the supplier first issues the invoice The day the supplier first issues the invoice
for the amount;for the amount; If there is an undue delay in issuing the If there is an undue delay in issuing the
invoice, the day the supplier would have invoice, the day the supplier would have issued the invoice; andissued the invoice; and
The day the client is required to pay the The day the client is required to pay the amount under a written agreement.amount under a written agreement.
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General Transition RuleGeneral Transition Rule
Supply on or after July 1Supply on or after July 1stst, 2010, 2010andand
Consideration due or paid without becoming dueConsideration due or paid without becoming due
(A)(A) (B)(B) (C)(C) (D)(D)
Oct. 14th Oct. 14th May 1st May 1st July 1stJuly 1st20092009 2010 2010 20102010
A.A. No OVAT, ORST appliesNo OVAT, ORST appliesB.B. Certain purchasers required to self-assess OVAT (eg. financial Certain purchasers required to self-assess OVAT (eg. financial
institutions, those using simplified accounting methods), ORST institutions, those using simplified accounting methods), ORST appliesapplies
C.C. Vendors required to collect OVAT, no ORST appliesVendors required to collect OVAT, no ORST appliesD.D. HST rules applyHST rules apply
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Requirement to Self Assess Requirement to Self Assess OVATOVAT
Certain purchasers (other than consumers) Certain purchasers (other than consumers) are required to self-assess the OVAT if:are required to self-assess the OVAT if: The supply is:The supply is:
Not used exclusively in commercial activities, (e.g. Not used exclusively in commercial activities, (e.g. exempt supplies) orexempt supplies) or
Subject to ITC restriction or recaptureSubject to ITC restriction or recapture Or, the purchaser:Or, the purchaser:
Uses simplified procedures to calculate net tax under Uses simplified procedures to calculate net tax under the ETA (e.g. Quick Methods), orthe ETA (e.g. Quick Methods), or
Is a selected listed financial institution using the Is a selected listed financial institution using the special attribution method to calculate net taxspecial attribution method to calculate net tax
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Transitional Rule – Sale of Transitional Rule – Sale of GoodsGoods
Sale of goods where goods are Sale of goods where goods are delivered and ownership is transferreddelivered and ownership is transferred to the to the purchaser on or after July 1purchaser on or after July 1stst, 2010, 2010
Does any part of the amount for the goods become due or is paid without having become due on or after July 1st, 2010?
Does any part of the amount for the goods become due or is paid without having
become due on or after May 1st, 2010 and beforeJuly 2010?
HST applies to that part of the amount
Does any part of the amount for the goods become due or is paid without having become due
after October 14th, 2009 and before May 2010?
HST applies to that part of the amount
GST applies to any part of an amount that becomes due or is paid without
having become due on or before October 14th, 2009
GST applies to that part of the amountbut certain non-consumers have
to self-assess the provincial part of the HST on that part of the amount
YesNo
No
Yes
Yes
No
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Transitional Rule – Lease of Transitional Rule – Lease of GoodsGoods
Lease of goods when a lease interval begins before July 2010 and ends on or Lease of goods when a lease interval begins before July 2010 and ends on or
after July 31after July 31stst, 2010, 2010 Does the lease payment become due or
is paid without having become due on or after May 1st, 2010?
Does the lease payment become due or is paid without having become due on or
after October 14th, 2009 and before May 2010?
GST applies to the part of the lease payment for the portion of the lease interval that is before July 2010;
HST applies to the part of the lease payment for the portion of the lease interval that is on or
after July 1st, 2010
GST appliesGST applies but certain non-consumers have to self-assess the provincial part of
the HST
No
No Yes
Yes
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Transitional Rule - ServicesTransitional Rule - ServicesServices performed during the period that includes July 1Services performed during the period that includes July 1stst, 2010, 2010
Is more than 10% of the service performed on or after July 1st, 2010?
Does any part of the amount for the service become due or is paid without having become
due on or after May 1st, 2010
GST applies to the full amount due for the service, regardless of when an amount becomes due
or is paid without having become due
GST applies to any part of the amount for the portion of the service performed before July 2010HST applies on any part of the amount for the portion of the service performed on or
after July 1st, 2010
Does any part of the amount for the service become due or is paid without having become due
after October 14th, 2009 and before May 2010?
NoYes
Yes
No
No
GST applies but certain non-consumers have to self-assess the provincial part of the
HST on the portion of the service performed on or after July 1st, 2010
GST applies
Yes
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Transitional Rule – Intangible Transitional Rule – Intangible Personal PropertyPersonal Property
IPP includes contractual rights, IPP includes contractual rights, intellectual property, rights to intellectual property, rights to acquire a membership, etc.acquire a membership, etc.
Consideration is subject to HST if it Consideration is subject to HST if it becomes due, or is paid without becomes due, or is paid without becoming due, on or after July 1becoming due, on or after July 1stst, , 20102010
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Transitional Rule – Non-Transitional Rule – Non-Residential Real PropertyResidential Real Property
HST applies if ownership and HST applies if ownership and possession are transferred on or possession are transferred on or after July 1after July 1stst, 2010, 2010
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Transitional Rules – Special Transitional Rules – Special CasesCases
SubscriptionsSubscriptions MembershipsMemberships Lifetime MembershipsLifetime Memberships AdmissionsAdmissions Freight ServicesFreight Services Passenger ServicesPassenger Services Transportation PassesTransportation Passes Prepaid Funeral ArrangementsPrepaid Funeral Arrangements Direct SellersDirect Sellers Continuous SuppliesContinuous Supplies Budget Payment ArrangementsBudget Payment Arrangements
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Transitional Rules–Combined Transitional Rules–Combined
SupplySupply
Property supplied will be deemed to be a Property supplied will be deemed to be a separate supply:separate supply: if property and/or services are supplied if property and/or services are supplied
together as a single supplytogether as a single supply Ownership or possession of the property has Ownership or possession of the property has
transferred to the recipient before July 2010, transferred to the recipient before July 2010, and,and,
The property is not subject to OVAT under the The property is not subject to OVAT under the general transitional rules if it were supplied general transitional rules if it were supplied separatelyseparately
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Transitional Rule – Progress Transitional Rule – Progress PaymentsPayments
Progress PaymentsProgress Payments(to construct, renovate, repair RP, ships etc)(to construct, renovate, repair RP, ships etc)
andandConsideration due or paid without becoming due:Consideration due or paid without becoming due:
(A)(A) (B)(B) (C)(C)
Oct. 14th Oct. 14th July 1stJuly 1st 20092009 20102010
A.A. No OVATNo OVATB.B. Vendor required to collect OVAT on progress paymentsVendor required to collect OVAT on progress paymentsC.C. HST rules applyHST rules apply
Holdbacks from a Progress Payment are subject to the same allocation Holdbacks from a Progress Payment are subject to the same allocation rule as the Progress Payment even if paid or payable after June 2010.rule as the Progress Payment even if paid or payable after June 2010.
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Recaptured Input Tax Recaptured Input Tax CreditsCredits
Similar to Quebec restrictionsSimilar to Quebec restrictions Apply to:Apply to:
Large business, > $ 10 million threshold amountLarge business, > $ 10 million threshold amount Financial institutionsFinancial institutions
Apply for 8 years, with a 3 year phase outApply for 8 years, with a 3 year phase out Do not apply to resale or resupplyDo not apply to resale or resupply Do not apply to public sector bodies or farmingDo not apply to public sector bodies or farming Do not apply to production use – use of proxiesDo not apply to production use – use of proxies Allocation and data captureAllocation and data capture
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Recaptured ITC’s - Recaptured ITC’s - continuedcontinued
EnergyEnergy TelecommunicationsTelecommunications Road VehiclesRoad Vehicles Fuel for Road VehiclesFuel for Road Vehicles Food, beverages, and entertainmentFood, beverages, and entertainment
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New Place of Supply (POS) New Place of Supply (POS) RulesRules
Place of supplyPlace of supplyGoods by way of sale:Goods by way of sale: Goods delivered or made available in Goods delivered or made available in Particular ProvinceParticular Province
a particular provincea particular provinceGoods by way of leaseGoods by way of lease Goods in a particular province at Goods in a particular province at Particular ProvinceParticular Province
commencement of lease intervalcommencement of lease intervalServices – General RulesServices – General Rules Where recipient’s address is known and is Where recipient’s address is known and is Particular provinceParticular province
situated in a particular provincesituated in a particular province Where recipient’s address is unknown and the Where recipient’s address is unknown and the Participating province in Participating province in
whichwhichCanadian portion of the service is performed Canadian portion of the service is performed most of the service most of the service performedperformedprimarily in the participating provincesprimarily in the participating provinces
Where the recipient's address is unknown and Where the recipient's address is unknown and A non-participating provinceA non-participating provincethe Canadian portion of the service is performedthe Canadian portion of the service is performed primarily outside the participating provincesprimarily outside the participating provinces
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New Place of Supply (POS) New Place of Supply (POS) Rules - continuedRules - continued
Place of supplyPlace of supplyIntangibles – General RulesIntangibles – General Rules Where property can be used only Where property can be used only
primarily in the particular participating primarily in the particular participating provinceprovince
Where property can be used only in a Where property can be used only in a Particular participating Particular participating provinceprovince particular participating provinceparticular participating province
Where property can be used in more Where property can be used in more Participating province in Participating province in whichwhich than one participating provincethan one participating province most rights would be used ifmost rights would be used if
all rights were usedall rights were used Where property can be used only Where property can be used only
primarily outside participating provincesprimarily outside participating provinces Non-participating provinceNon-participating province Where use of property not geographically Where use of property not geographically
specific:specific: Where address of the recipient is knowWhere address of the recipient is know Province in which address is Province in which address is
situatedsituated Where address of recipient is unknownWhere address of recipient is unknown The participating province The participating province
with thewith the highest ratehighest rate
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Winding Down the ORSTWinding Down the ORST
Small business transition creditSmall business transition credit ORST transitional rulesORST transitional rules Final ORST returnsFinal ORST returns ORST refunds and rebatesORST refunds and rebates Returns and exchangesReturns and exchanges Transitional ORST inventory rebateTransitional ORST inventory rebate Anti-avoidanceAnti-avoidance Additional informationAdditional information
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Transitional Rule - ORSTTransitional Rule - ORST
Supply of Goods, Services, AdmissionsSupply of Goods, Services, Admissions(supplied on or after July 1(supplied on or after July 1stst, 2010, 2010
andandConsideration due or paid without becoming dueConsideration due or paid without becoming due
(A)(A) (B)(B) (C)(C) (D)(D)
Oct. 14Oct. 14thth May May 1st1st July 1July 1stst July 31 July 31stst 20092009 2010 2010 20102010 2010 2010
A.A. ORST applies (No OVAT)ORST applies (No OVAT)B.B. ORST applies (ORST applies (except except if used exclusively in commercial activities, or purchaser required to self if used exclusively in commercial activities, or purchaser required to self
assess OVAT*)assess OVAT*)C.C. No ORST applies (vendor required to collect OVAT*)No ORST applies (vendor required to collect OVAT*)D.D. No ORST applies (HST rules apply*)No ORST applies (HST rules apply*)
*Except on services performed substantially all before July 2010, and lease intervals beginning before *Except on services performed substantially all before July 2010, and lease intervals beginning before July 2010 and ending before July 31July 2010 and ending before July 31stst, 2010., 2010.
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Final ORST ReturnsFinal ORST Returns
No ORST vendor’s compensation for returns No ORST vendor’s compensation for returns filed for periods ending after March 31filed for periods ending after March 31stst, 2010, 2010
Final ORST returns are required to be filed by Final ORST returns are required to be filed by July 23July 23rdrd, 2010, 2010
Supplemental ORST returns are required to Supplemental ORST returns are required to be filed by the 23be filed by the 23rdrd day of the month day of the month following for any ORST collected or payable following for any ORST collected or payable after June 2010after June 2010
All supplemental ORST returns are required All supplemental ORST returns are required to be filed by November 23to be filed by November 23rdrd, 2010, 2010
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ORST Refunds and RebatesORST Refunds and Rebates
Time limits for claims remain in Time limits for claims remain in effect until the earlier of expiry or effect until the earlier of expiry or June 30June 30thth, 2014, 2014
Existing assessment, objection and Existing assessment, objection and enforcement provisions under the enforcement provisions under the RST Act apply to past transactions RST Act apply to past transactions (until expiry)(until expiry)
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ORST Returns and ORST Returns and ExchangesExchanges
Goods Goods subject to ORST subject to ORST bought (before July bought (before July 2010) and returned (after June and Before 2010) and returned (after June and Before November 2010) for:November 2010) for: Full refund – ORST* refundedFull refund – ORST* refunded Straight exchange – no ORST or OVAT effectStraight exchange – no ORST or OVAT effect Exchange with partial refund – partial ORST* Exchange with partial refund – partial ORST*
refundrefund Exchange with an additional payment – HST Exchange with an additional payment – HST
applies to the additional paymentapplies to the additional payment
* + applicable GST* + applicable GST
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ORST Returns and Exchanges - ORST Returns and Exchanges - continuedcontinued
Goods Goods not subject to ORST not subject to ORST bought (before bought (before July 2010) and returned (after June July 2010) and returned (after June 2010 and before November 2010):2010 and before November 2010): For full refund – ORST N/A – no ORST refundFor full refund – ORST N/A – no ORST refund
OVAT applies to the full consideration for the OVAT applies to the full consideration for the replacement property for a:replacement property for a: Straight exchangeStraight exchange Exchange with partial refundExchange with partial refund Exchange with additional payment (+GST)Exchange with additional payment (+GST)
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ORST Returns and Exchanges - ORST Returns and Exchanges - continuedcontinued
No point-of-sale ORST adjustments for No point-of-sale ORST adjustments for goods returned on or after November 1goods returned on or after November 1stst, , 20102010
HST applies to the full consideration for the HST applies to the full consideration for the new item for any exchangenew item for any exchange
Purchaser can file a refund claim for:Purchaser can file a refund claim for: ORST paid in errorORST paid in error GST paid on the initial transactionGST paid on the initial transaction
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Preparing for HSTPreparing for HST
Invoice and billing systemsInvoice and billing systems When to charge/pay 5% vs. 13%When to charge/pay 5% vs. 13%
A/P systems:A/P systems: Ability to track purchases and self-assessment Ability to track purchases and self-assessment
requirementsrequirements
Review contracts/leases that straddle July 1Review contracts/leases that straddle July 1stst, 2010, 2010
Review prepaymentsReview prepayments
Planning for acceleration or deferral of purchasesPlanning for acceleration or deferral of purchases
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Impact of HST On….Impact of HST On….
ManufacturersManufacturers Retailers Retailers BuildersBuilders Non-Profit SectorNon-Profit Sector Financial InstitutionsFinancial Institutions
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Non-Profit Sector RebatesNon-Profit Sector Rebates
Public Service Body RebatesPublic Service Body RebatesRebate % of HST Rebate % of HST
PaidPaidOVATOVAT GSTGST
MunicipalitiesMunicipalities 78%78% 100%100%
Universities and collegesUniversities and colleges 78%78% 67% 67%
School boardsSchool boards 93%93% 68% 68%
HospitalsHospitals 87%87% 83% 83%
Charities and NPO’sCharities and NPO’s 82%82% 50% 50%
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Mandatory Electronic FilingMandatory Electronic Filing
For all reporting periods ending on or after July 1For all reporting periods ending on or after July 1stst, , 2010 for:2010 for:
GST/HST registrants (except charities) with GST/HST registrants (except charities) with greater than $1.5 million in annual taxable greater than $1.5 million in annual taxable supplies (including those of their associatessupplies (including those of their associates
GST/HST registrants required to recapture ITC’s in GST/HST registrants required to recapture ITC’s in Ontario and B.C.Ontario and B.C.
Builders affected by the HST transitional housing Builders affected by the HST transitional housing measures in Ontario and B.C.measures in Ontario and B.C.
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Questions and AnswersQuestions and Answers