Small Business

Minimize the HST impact

Written by Jeff Llewellyn

Now! While the legislation that would bring the harmonized sales tax to B.C. and Ontario has yet to be passed into law, there’s little doubt that they will. HST has many effects for which companies in Ontario and B.C. need to plan, and you might need to act even if your business is not located in one of the soon-to-be HST provinces.

Effective July 1, 2010, all goods, services or real property presently subject to GST will be subject to HST of 12% in B.C. and 13% in Ontario. However, as of May 1, companies that sell long-term service contracts will have to collect HST on the portion of any contract that straddles the HST transition date (e.g., a one-year golf-club membership that’s sold and starts in June).

Accommodating the HST changes will, at the very least, involve making pricing decisions and adjusting point-of-sale, accounting and accounts payable/receivable systems. There will be cost and cash-flow considerations, too. This is especially true for companies that sell HST-exempt goods and services, as they will have to pay HST without being able to claim the input tax credits that are accessible to businesses that do collect HST. Effectively preparing for HST transition in advance will allow companies to ensure they are claiming the appropriate tax credits and that they maximize any tax-saving opportunities.

The HST will also affect GST-registered companies located outside Ontario and B.C. that sell into those provinces. That’s because in the GST/HST system, the onus is on the vendor in an interprovincial transaction to remit the necessary taxes to the government.

In any situation, failure to collect or properly account for the new HST could result in non-compliance penalties. Companies that don’t remit HST in a timely manner will also be subject to interest charges on amounts owing, even if their inability to pay is the upshot of their own accounting errors or failure to collect the tax.

The rules surrounding the HST transition are complex. That’s why it’s important to work with a professional who can help you understand the rules, set up the proper systems and take advantage of opportunities to minimize the impact of the HST.

A business adviser can help you perform a diagnostic analysis, establish priorities for necessary systems, process changes and help you minimize cost and cash-flow impacts.

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