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March 2010 - Brian Titanich


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March 2010 - Brian Titanich

  1. 1. The HST and You!Fraser Valley CA AssociationBrian TitanichSr. Manager Commodity TaxBDO Canada LLPbtitanich@bdo.caDate March 4, 2010
  2. 2. Outline• Background to the HST• The Potential Impact• Transitional Rules• Planning/Place of Supply Rules• Electronic Filing• Questions Page 2
  3. 3. Background to the HSTInformation Released B.C.•Limited legislation has been issued (Bill C-62 – Royal Assent – Dec15/09)•HST Notices - #1 Transitional Rules (Oct 14/09) - #2 POS exemptions (Nov 16/09) - #3 Residential Housing (Nov 18/09) - #4 Temporary Recapture of ITCs (Feb 19/10) - #5 Notice to Energy Suppliers – Residential (Feb 24/10}• Comprehensive Integrated Tax Coordination Agreement (Nov 30/09) Page 3
  4. 4. Background to the HSTBasics•Effective July 1, 2010 - Elimination of the PST•Rate of 7% for the BC HST and 5% for the GST•Parallels the GST•HST is a “value-added tax” rather than the BC SocialService Tax (PST) which is a consumption tax Page 4
  5. 5. Background to the HSTPros“Simpler” compliance - Deal with only one government tax authority - One potential compliance auditPST is subject to interpretation - Results in many judgment calls made by auditors - Limited legislative guidanceWill eliminate embedded PST previously absorbed by persons engaged exclusively in commercial activities as HST is recoverable as ITCs Page 5
  6. 6. Background to the HSTConsAdditional tax to consumersExpenditures not currently subject to PST: - i.e. professional fees (other than legal services), commercial rents, real property purchasesAdditional tax on entities not exclusively engaged in commercial activities (i.e. exempt supplies) - Many Public Service Bodies - Health Care services - Financial institutionsCash flow impact - Like the GST, BC HST will be remitted when billed, not when collected - Purchases taxed at 12% Page 6
  7. 7. The Potential ImpactPage 7
  8. 8. Potential ImpactTax Collection – GST/HST• GST tax status does not change – only the rate - Was an exempt supply remains an exempt supply - 5% = 12% - Except for Point of Sale Rebates• Filing Frequency - No change as frequency based on annual sales - Electronic filing may be required*• Registration Threshold - Still need sales to exceed small supplier threshold (30K/50K) Page 8
  9. 9. Potential ImpactTax Collection - PSTGenerally,• As of July 1, 2010, PST will cease to apply on goods and services*• As of July 1, 2010, PST will cease to apply on goods brought into BC or imported by a resident• Final PST returns due July 23, 2010• PST collected or becomes payable after June 2010 supplemental PST returns to be filed by 23rd day of following month Page 9
  10. 10. Potential ImpactTax Collection - Point of Sale RebatesTax Relief from the BC HST (7%) for:• Certain Motor Fuels• Books• Children’s clothing and footwear• Car seats and car booster seats• Diapers• Feminine hygiene products*Residential Energy Credit Program Page 10
  11. 11. Potential ImpactTax Paid – ITC Restrictions on BC HST PaidITCs Restricted for “Large Businesses” - TAXABLE sales over $10,000,000 annually - On an associated basis - May impact Transitional RulesRestricted ITCs - First 5 years - After first 5 years, phased in over next 3 years Page 11
  12. 12. Potential ImpactTax Paid – ITC Restrictions on BC HST PaidRestricted purchases: - Energy (except for energy used for farming or for production of goods for sale) - Telecommunications services other than internet access or toll free numbers - Road vehicles less than 3000 kilograms and related fuel, parts and certain services - Food, beverages and entertainment Page 12
  13. 13. Transitional Rules When do we charge/pay PST? When do we charge/pay the BC HST? When do we have to self-assess?Page 13
  14. 14. Transitional RulesSale of Goods (Tangible Personal Property)Consideration becomes due (e.g., invoiced) or is paid for taxable goods delivered after June 30, 20101. Invoice dated on or after May 1, 2010 • HST collected by vendor • PST not collected5. Invoice dated between October 14, 2009 and May 1, 2010 • HST not collected by vendor (GST collected) • PST collected by vendor • Purchaser may be required to self-assess Page 14
  15. 15. Transitional RulesSale of GoodsExample 1Sale of TV occurs in April 2010. Purchased for $1,000 for individual personal use (i.e., consumer). Pays for the TV in full at the time of purchase. TV gets delivered and ownership transfers on July 15, 2010ResultConsideration was paid in full April 2010 (before May 1, 2010), GST is triggered in April 2010, earlier of when consideration becomes due, or when paid without becoming due.GST is collected – no BC HSTPST is collected - No self-assessment (consumer) Page 15
  16. 16. Transitional RulesSale of GoodsExample 2Company on the GST Quick Method buys a TV in April 2010. Delivered in July 2010. Ownership transfers in July 2010ResultGST is paid.Self-assess the BC component of HST (7%) on the purchase of the TV, remit tax in GST return that includes July 1, 2010, or before November 2010 on prescribed form (whichever is earlier).If PST is paid, PST refund opportunity Page 16
  17. 17. Transitional RulesSelf-assessment Transactions after October 14, 2009 and before May 2010 Who is required to self-assess BC component of HST (7%)? • Businesses acquiring supply not exclusively in commercial activities • Large Business acquiring supply subject to ITC restrictions • Using simplified procedures (i.e. charities, quick method) • Selected listed financial institutions • *Excludes consumers Remit BC HST earlier of the GST/HST return for July 1, 2010 or on prescribed form before November, 2010. Page 17
  18. 18. Transitional RulesServicesConsideration becomes due (e.g., invoiced) or is paid for services performed after June 30, 2010*1. Invoice dated on or after May 1, 2010 • HST collected by vendor • PST not collected (even if service subject to PST)5. Invoice dated between October 14, 2009 and May 1, 2010 • HST not collected by vendor • PST collected by vendor (if subject to PST) • Purchaser may be required to self-assess BC HST*Special rules for lifetime memberships and construction service contracts Page 18
  19. 19. Transitional RulesServices Special Transitional Rule No BC HST to be charged on a supply of a service that is 90% performed before July 1, 2010. GST is charged. PST is charged if subject to PST. *Acceptable documentation will need to be maintained. Page 19
  20. 20. Transitional RulesServicesService performed straddles July 1, 2010, implementation date. Service subject to GST, not PST.Example #1Lawn maintenance package purchased (paid for) on April 15, 2010Service covers period from June 1, 2010, to December 31, 2010Result• No HST is collected since the service is paid for before May 1, 2010• Self assessment may be required on cost of maintenance package that relates to post July 1, 2010 period (only for “non-consumers” and only if a full ITC is not claimable) Page 20
  21. 21. Transitional Rules Memberships*ExampleGolf Membership for 2010 sold to consumer. Membership to be billed in 3 equal installments, $1,000 each on January 1, May 1 and September 1ResultJanuary 1 invoice – GST onlyMay 1 invoice – GST on entire invoice, BC HST on half of invoice (July & August)September 1 invoice – HST on entire invoice*Special rule for lifetime membership – payments made before May 1, 2010, may be subject to HST. Page 21
  22. 22. Transitional Rules Real PropertyExampleCommercial property purchase and sale agreement entered into on March 1, 2010, ownership and possession transfer on August 1, 2010ResultHST would apply to the transactionDepending on GST/HST registration status of purchaser HST may have to be paid to vendor or self-assessed by purchaser Page 22
  23. 23. Transitional RulesNew Residential HousingGeneral Rules“Grandparented Transactions” Agreements on or before November 18/09 - No HST is collected - Builder pays transitional tax adjustment (TTA) based on % completion as of June 30, 2010 - TTA = PST not paid on post June 30, 2010 costsAgreements after November 18, 2009 - HST applies - Purchaser may be entitled to a transitional PST rebate on estimated PST costs incurred pre July 1, 2010. Page 23
  24. 24. PlanningPage 24
  25. 25. PlanningCompliance - Points to Consider• HST Impact Analysis - Cash Flow - Direct Costs (5% - 12%)• HST Implementation Strategy - Accounting System - Review Contracts• Staff Training - A/P and Billing Functions• Post-Implementation Review Page 25
  26. 26. Planning for HSTPotential Risk Areas  System errors (5% versus 12%) • Not picking up or charging correct tax rate  Exempt versus 12% taxable supplies • Registered but not aware taxable supply  Tracking Restricted ITCs • Self-assessment Page 26
  27. 27. Planning for HST Potential Risk Area – Imported Taxable Supplies*Pre July 1, 2010A recipient of an imported taxable supply was required to self assess the GST on the value of consideration for the supply. - A person who was entitled to a full ITC or rebate was not required to self-assess. - Generally required entities to self assess GST on imported services and intangibles (e.g., software)Post June 30, 2010A recipient of an imported taxable supply may be required to self-assess both the GST and BC HST on the following supplies if a full ITC is not claimable. - Services and intangible property acquired outside Canada - Any taxable supply that is imported into B.C. from another province Page 27
  28. 28. Planning for HSTPlace of Supply Rules – Tangible Personal Property (TPP)Current Rule/No ChangeSales of tangible personal property are made in a province if the supplier delivers the property or makes it available in that province to the recipient of the supply.• if a supplier in BC ships or mails taxable TPP to Saskatchewan, or arranges for a common carrier to do so, possession will have taken place in Saskatchewan and 5% GST will apply.• If a supplier in Alberta sells TPP to a purchaser in BC, and the purchaser arranges to pick the TPP up in Alberta and will use the TPP exclusively in BC it may be required to self assess the 7% BC HST.
  29. 29. Planning for HSTPlace of Supply Rules - ServicesNew General Rule A supply of a service is deemed to be made in a particular province if in the normal course of business, the supplier obtains an address of the recipient that is (a) a home or business address in Canada of the recipient, (b) where the supplier obtains more than one home or business address in Canada of the recipient, the home or business address that is most closely connected with the supply, or (c) where the supplier does not obtain a home or business address in Canada of the recipient, another Canadian address that is most closely connected with the supply.Does not apply to Specific Services Page 29
  30. 30. Planning for HSTPlace of Supply Rules - ServicesExample – General Rule An accounting firm in Calgary, Alberta is hired to conduct a financial audit of a company with a business address in Kelowna, British Columbia. In the course of the audit, 60 per cent of the work is performed in Calgary and the remaining 40 per cent is performed at the companys Kelowna address. Because the supplier obtains the recipients British Columbia business address, the service will be subject to HST at a rate of 12 per cent (a 5 per cent federal component and a 7 per cent British Columbia component). Page 30
  31. 31. Planning for HSTPlace of Supply Rules - ServicesSpecific Services:• Personal Services (e.g., haircuts)• Services in relation to real property• Services in relation to tangible personal property• Services in relation to a location specific event• Services rendered in connection with litigation• Services supplied on board conveyances• Customs brokerage services – non commercial goodsTIB - 103 Page 31
  32. 32. PlanningOpportunitiesAccelerate non-taxable PST purchases • custom software • real property • non-taxable servicesDelay purchases that are currently subject to PST until after June 30, 2010 • virtually all goods • taxable services • software Page 32
  33. 33. PlanningStrategyConsider Whether To Change GST Filing Frequency - Smaller entities have the choice to file annually, quarterly or monthly GST returns - Evaluate cash flow issues relating to the HST on expenses and revenues Page 33
  34. 34. Electronic FilingPage 34
  35. 35. Electronic FilingTypes• NETFILE File the returns directly with the CRA over the internet• TELEFILE File the returns using the touch-tone telephone and a toll-free number• EDI (Electronic Data Interchange) File the returns using EDI (computer-to-computer exchange of information)• GIFT (GST/HST Internet File Transfer) File the returns using third-party CRA-approved accounting software Client name - Event - Presentation title Page 35
  36. 36. Electronic FilingWho is Required*• Required to recapture Input Tax Credit (NETFILE)• Your annual threshold amount is >$1.5 million (Electronic File)• You are a builder who makes certain supplies (NETFILE)*Refer to CRA Notice 249 for complete information Client name - Event - Presentation title Page 36
  37. 37. Questions?Page 37