harmonized sales tax (hst) · 2012-08-22 · operator does not embed tax into the cost of...
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Harmonized Sales Tax (HST)
Business Information Session
August 8, 2012
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Fiscal situation of PEI deteriorated during 2011/12 Deficit rising on lower revenues and higher expenditures
• Liquor revenues, golf and other fees were down• Pension, health care, social services, agriculture support cost
increased• Rising deficit risks social and health care programs• Continued restraint on transfers
Fiscal course needed correction
Budget 2012Fiscal Context
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Pre Budget Consultations (main themes expressed bythe public) Take steps to reduce the deficit – its too high Strike balance between increasing revenues and reducing
program spending Look for better efficiency, reduce waste, duplication inside
departments Reduce red tape and competitive disadvantage that the
private sector faces, allowing the economy to grow further
Preparations for Budget 2012
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Three-year Budget Plan To foster private sector economic growth Educational focus on student achievement Modernize health system to focus on patient needs and
sustainability Fiscal balance will be restored by 2015
Key Budget Policy Objectives
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Broadly restrain growth in expenditures• Health to increase by 4.1% this year then capped at 3.5%• Education to increase by 1.8% and zero after that.• Other Depts. to see reductions of 3% - 5%
Government streamlining and consolidation of • Treasury Board, IT and accounting services• Communications• Human Resources
Balancing Expenditure Restraint and
Revenue Increases
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Expenditure restraint alone is not enough Need to increase revenues by $25 million annually General fee and sundry tax increases to regional
averages are not enough
Balancing Expenditure Restraint and
Revenue Increases
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Government set three revenue policy objectives To balance the Budget while protecting public services To focus government policy to improve economic growth in
the private sector To protect low and modest income families
Revenue Policy
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Several options were considered Raising income taxes
• already high and under pressure to reduce them when/where possible
Raising PST by 1%• would fail 2 of 3 policy objectives
Raise required revenueX Improve economic growthX Protect low and modest income families
Revenue Options
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Harmonization achieves all three revenue objectives Raises the required revenue Improves economic growth
Levels playing field for businessReduces “Red Tape”
Protects low and modest income families Point-of-Sale rebates
• Heating Oil• Children’s footwear and children’s clothing
Refundable credit targeting low and modest income households
Harmonization of Provincial and Federal
Sales Taxes
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Effective April 1st, 2013 (*) HST rate - 14% applied to same base as GST
• Federal component - 5%• Provincial component – 9%
Point of sale exemptions• Heating oil, children’s clothing, children’s footwear
Rebate program for low and modest income households Administered by the federal government In general, GST rules will apply to HST
* Subject to Legislative approval
HST AnnouncementBudget Day
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Improved economy and investment will create more opportunities for Island business and jobs
Impact on Business Investment
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Low income households are protected from an increase in tax through a combination of: Point-of-sale rebates
• Heating oil• Children’s footwear and children’s clothing
Refundable tax credit• Households with income under $55k to receive up to a maximum of
between $150 to $200 • Similar structure to federal GST credit – integrated with Income Tax
Impact on Household
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To ensure Islanders are not burdened by the new tax model, the Province will: Exempt home heating oil, children’s clothing and children’s
footwear Create a rebate program for low and modest income Islanders Reduce the provincial tax by 1.5% - the first time a reduction in
provincial sales tax has ever been implemented on the Island
HST – Right Directionfor Both Economy and
Society of PEI
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Tax System Comparison HST Facts GST/PST – Current System and HST – After April 1, 2013
• Registrants• Non-Registrants, Small Supplier• Supplier of Exempt Supplies
GST/PST to HST Transition Benefits of HST for Business Additional Information One-on-One Industry Sector Information Sessions
Technical Presentation
Business Information Session 17
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Provincial Sales Tax (Cascading Tax) – Example Tourist accommodation operator pays PST on items such as
construction materials, repairs and maintenance, computer equipment and systems, accounting fees, office supplies and accommodation supplies used in providing guest accommodations
Operator embeds the PST paid into the cost of accommodations Customer pays GST and PST on cost of accommodations Customer pays tax on tax
• GST and PST on the tax embedded into the cost of accommodations • PST on top of GST on cost of accommodations
Tax System Comparison
Business Information Session 18
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Harmonized Sales Tax (Value Added Tax) – Example Tourist accommodation operator pays HST on items such as
construction materials, repairs and maintenance, computer equipment and systems, accounting fees, office supplies and accommodation supplies used in providing guest accommodations
Operator receives an input tax credit for all HST paid Operator does not embed tax into the cost of accommodations Customer pays HST on cost of accommodations Customer does not pay tax on tax
Tax System Comparison
Business Information Session 19
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Supplies “Supplies” or “Supply” refers to a businesses revenue generating activity Taxable, zero-rated or exempt
Taxable Supplies Taxable at the HST rate for the participating province (PEI - 14%) Businesses who make taxable supplies can claim “input tax credits” for tax
paid on inputs acquired to make those supplies
HST FactsApplication of HST
Business Information Session 20
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Zero-rated Supplies Taxable at the rate of 0% Businesses who make zero-rated supplies are permitted to claim “input tax
credits” for the tax paid on inputs acquired to make those supplies. Zero-rated supplies are effectively tax free
HST FactsApplication of HST
Business Information Session 21
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Exempt Supplies Exempt supplies are not subject to the HST Businesses making exempt supplies are not permitted to claim “input tax
credits” for the tax paid on inputs acquired to make those supplies Tax paid on inputs is an additional cost of doing business and becomes
embedded in the amount charged by the supplier for the exempt supplies
HST FactsApplication of HST
Business Information Session 22
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Supplier Registration If already registered for GST a business will be automatically registered for
HST Suppliers, who are required to register to collect HST, referred to as
Registrants• Suppliers who make taxable or zero rated supplies are required to register
Small suppliers, except taxi operators, do not have to register to collect HST • Small suppliers are those businesses with worldwide taxable revenues not exceeding
$30,000• Referred to as non-registrants
Suppliers making exempt supplies do not register to collect the HST• Referred to as non-registrants
HST FactsRegistration
Business Information Session 23
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Input Tax Credits (ITCs) Input tax credits (ITCs) are credits for the GST/HST paid or payable
on goods and services acquired for consumption, use or supply in a commercial activity
ITCs are based on extent of use in commercial operations To claim an ITC, a business must be a GST/HST registrant ITCs are recorded on a GST/HST return
HST FactsInput Tax Credits (ITCs)
Business Information Session 24
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Subject to GST at 5% or 0% Purchase of goods and services used by businesses in their
operations Purchase of building materials used by real property contractors in
completing their real property contracts Purchase of goods for resale
GST/PST – Current SystemGST/PST on Expenses
(Registrant)
Business Information Session 25
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Subject to PST at 10.5% Purchase of goods and services used by businesses in their
operations Purchase of building materials used by real property contractors in
completing their real property contracts
Exempt from PST Purchase of goods for resale or raw materials used in
manufacturing/production Purchase of certain goods and goods by specific industries such as
farming and fishing
GST/PST – Current SystemGST/PST on Expenses
(Registrant)
Business Information Session 26
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Input Tax Credits at 5% Purchase of goods and services used by businesses in their
operations Purchase of building materials used by real property contractors in
completing their real property contracts Purchase of goods for resale
GST/PST – Current SystemInput Tax Credits
(Registrant)
Business Information Session 27
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Subject to HST at 14% or 0% Purchase of goods and services used by businesses in their
operations Purchase of goods for resale
HST – After April 1, 2013HST on Expenses
(Registrant)
Business Information Session 28
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Input Tax Credits at 14% Purchase of goods and services used by businesses in their
operations Purchase of goods for resale
HST – After April 1, 2013HST on Expenses
(Registrant)
Business Information Session 29
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HST – After April 1, 2013HST on Expenses
(Registrant)
Business Information Session 30
ExampleExpense: Equipment repairs & maintenance
Under GST/PST
Cost $7,500
GST – 5% 375
PST – 10% 788
8,663
Input tax credit 375
Net Cost $ 8,288
Under HST
Cost $7,500
HST – 14% 1,050
PST 0
8,550
Input tax credit 1,050
Net Cost $7,500
Savings $ 788
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GST/PST and HSTSummary (Registrant)
31Business Information Session
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GST Taxable - 5% of the selling price Zero-rated - 0% of the selling price Exempt – not subject to tax
PST Taxable at 10% of the GST included selling price Exempt
GST/PST – Current SystemGST/PST on Sales
(Registrant)
Business Information Session 32
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HST Taxable - 14% of the selling price Zero-rated - 0% of the selling price Exempt – not subject to tax
HST – After April 1, 2013HST on Sales(Registrant)
Business Information Session 33
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ExampleSale: Motor Vehicle
Business Information Session 34
HST – After April 1, 2013HST on Sales(Registrant)
Under GST/PST
Cost $17,500
GST – 5% 875
PST – 10% 1,838
Total selling price $20,213
Under HST
Cost $17,500
HST – 14% 2,450
PST 0
Total selling price $19,950
Price reduction $ 263
Impact of new ITCs
Net price reduction ≥ $263
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Business Information Session 35
HST – After April 1, 2013HST on Sales(Registrant)
Under GST/PST
Cost $50.00
GST – 5% 2.50
PST – 10% 0
Total selling price $ 52.50
Under HST
Cost $50.00
HST – 14% 7.00
PST 0
Total selling price $ 57.00
Price increase $ 4.50
Impact of ITCs
Net price increase ≤ $ 4.50
ExampleSale: Adult Clothing (or any PST exempt good or service)
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Business Information Session 36
HST – After April 1, 2013HST on Sales(Registrant)
Under GST/PST
Cost $ 6
GST – 5% 0
PST – 10% 0
Total selling price $ 6
Under HST
Cost $ 6
HST – 14% 0
PST 0
Total selling price $ 6
Impact of new ITCs
Total selling price ≤ $ 6
ExampleSale: Milk
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Subject to GST at 5% or 0% Purchase of goods and services used by businesses in their
operations Purchase of building materials used by real property contractors in
completing their real property contracts Purchase of goods for resale
GST/PST – Current SystemGST on Expenses(Non-Registrant)
Business Information Session 37
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Subject to PST at 10.5% Purchase of goods and services used by businesses in their
operations Purchase of building materials used by real property contractors in
completing their real property contracts
Exempt from PST Purchase of goods for resale or raw materials used in
manufacturing/production Purchase of certain goods or certain goods by specific industries such
as farming and fishing
GST/PST – Current SystemPST on Expenses(Non-Registrant)
Business Information Session 38
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Input Tax Credits Not eligible for input tax credits
GST/PST – Current SystemInput Tax Credits(Non-Registrant)
Business Information Session 39
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Subject to HST at 14% or 0% Purchase of goods and services used by businesses in their
operations Purchase of goods for resale
HST – After April 1, 2013HST on Expenses(Non-Registrant)
Business Information Session 40
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Input Tax Credits Not eligible for input tax credits
HST – After April 1, 2013Input Tax Credits(Non-Registrant)
Business Information Session 41
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HST – After April 1, 2013(Non-Registrant)
Business Information Session 42
ExampleExpense: Bedding, linens and mattresses
Under GST/PST
Cost $1,750
GST – 5% 88
PST – 10% 184
2,022
Input tax credit 0
Net Cost $2,022
Under HST
Cost $1,750
HST – 14% 245
PST 0
1,995
Input tax credit 0
Net Cost $1,995
Savings $ 27
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GST/PST and HSTSummary (Non-Registrant)
43Business Information Session
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HST – After April 1, 2013Small Supplier
(Optional Registrant)
Business Information Session 44
ExampleExpense: Bedding, linens and mattresses
Non-Registrant
Cost $1,750
HST – 14% 245
PST 0
1,995
Input tax credit 0
Net Cost $1,995
Registrant
Cost $1,750
HST – 14% 245
PST 0
1,995
Input tax credit 245
Net Cost $1,750
Savings $ 245
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GST Exempt
PST Taxable at 10% Exempt
GST/PST – Current SystemGST/PST on Sales(Non-Registrant)
Business Information Session 45
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HST Exempt
HST – After April 1, 2013HST on Sales
(Non-Registrant)
Business Information Session 46
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ExampleSale: Cottage Rental (1 week)
Business Information Session 47
HST – After April 1, 2013HST on Sales
(Non-Registrant)
Under GST/PST
Cost $1,200
GST – 5% 0
PST – 10% 120
Total selling price $1,320
Under HST
Cost $1,200
HST – 14% 0
PST 0
Total selling price $1,200
Price reduction $ 120
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HST – After April 1, 2013HST on Sales
(Optional Registrant)
Business Information Session 48
ExampleSale: Cottage Rental (1 week)
Not Registered
Price $1,200
HST – 14% 0
PST 0
Total selling price $1,200
Registered
Price $1,200
HST – 14% 168
PST 0
Total selling price $1,368
Price Increase $ 168
Impact of new ITCs
Total increase ≤ $168
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Subject to GST at 5% and PST at 10.5% Purchase of goods and services used by businesses in their
operations Purchase of goods for resale
Input Tax Credits No input tax credits available
GST/PST – Current StatusSupplier of Exempt
Supplies
Business Information Session 49
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Subject to HST at 14% Purchase of goods and services used by businesses in their
operations Purchase of goods for resale
Input Tax Credits No input tax credits available
HST – After April 1, 2013Supplier of Exempt
Supplies
Business Information Session 50
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HST – After April 1, 2013Supplier of Exempt
Supplies
ExampleExpense : Electricity
Under GST/PST
Cost $3,000
GST – 5% 150
PST – 10% 0
3,150
Input tax credit 0
Net Cost $3,150
Under HST
Cost $3,000
HST – 14% 420
PST 0
3,420
Input tax credit 0
Net Cost $3,420
Increase $ 270
51Business Information Session
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HST – After April 1, 2013Supplier of Exempt Supplies
ExampleExpense: Equipment Repairs and Maintenance
Under GST/PST
Cost $15,000
GST – 5% 750
PST – 10% 1,575
$17,325
Input tax credit 0
Net Cost $17,325
Under HST
Cost $15,000
HST – 14% 2,100
PST 0
$17,100
Input tax credit 0
Net Cost $17,100
Savings $ 225
Business Information Session 52
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Transition rules Prevent double taxation Prevent gaps in the application of tax
GST/PST to HSTTransition Rules
Business Information Session 53
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Business Information Sessions One-one-one industry sector meetings Research Collaboration with federal government Announcement Finalization in Comprehensive Integrated Tax Co-ordination
Agreement (CITCA)
GST/PST to HSTTransition Rules
Business Information Session 54
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Rebate Programs Point of sale rebates on the following items:
• Heating oil• Children’s clothing• Children’s foot wear
Rebate program for low and modest income Islanders Other
GST/PST to HST TransitionRebate Programs
Business Information Session 55
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Reduces red tape Limits reporting (one sales tax return) Provides single taxing authority Administered under one set of rules Increases monthly return threshold
Benefits of HSTfor Business
Business Information Session 56
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Reduces complexity Less complex rules regarding the required application of
tax• Under PST many exemptions were based on the status of the
purchaser. Vendor error was costly.• Under HST most exemptions are based on the particular good or
service being sold. Easier for registrants to comply.
Benefits of HSTfor Business
Business Information Session 57
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Enhances competitiveness and economic growth Input Tax Credits put Island businesses on a level playing field in the
region Protects customer base and tax base
• On-line/out-of province shopping
Provides opportunity for business to:• Increase bottom line• Re-invest in business and enhance economy• Increase competitiveness(*) Reference:
The Impact of Sales Tax Reform on Ontario Consumers: A First Look at the EvidenceMichael Smart (http://www.fin.gov.on.ca/en/publications/2011/smart.html)
Benefits of HSTfor Business
Business Information Session 58
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Terms of reference Contact information
HSTOne-on-One Industry Sector
Information Sessions
Business Information Session 59
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Department of Finance, Energy and Municipal Affairs• [email protected] - Email• www.gov.pe.ca/hst - Website
Canada Revenue Agency (CRA)• www.cra-arc.gc.ca
HSTAdditional Information
Business Information Session 60