Don’t Let HST Catch You by Surprise

HST Checklist for Your Business.

As an Ontario or British Columbia business owner you may already be considering the effects of the Harmonized Sales Tax (HST) on your company come this summer.  In the broadest of terms, many businesses with supplies, services, and transactions made in Ontario or British Columbia that are currently registered for the 5% GST will be required to collect 13% HST in Ontario ( 8% PST + 5% GST) and 12% HST in B.C. ( 7% PST + 5% GST ), effective July 1, 2010. Though still a few months away, businesses should already be devising their plan of action for the transition.

In order to assist you with your integration process we’ve assembled a basic checklist that should shed some light on aspects to consider:

• Determine if the nature of your business will require you to adjust to the 12% or 13% HST. The government’s website provides a high-level overview of taxable and exempt goods and services.

• Evaluate the impact of the harmonized sales tax on your company’s budgets. Review your projected expenditures, perhaps it’s more beneficial to delay some projects till after June 2010 when you’ll be in a much more advantageous position to recover the provincial component of the tax paid.

• Review on-going and future contracts, agreements, and any promotional material to ensure that your operating-costs are defined to include the combined tax.  New contracts that will extend beyond July 1, 2010 will need to have these modifications in place. Keep this in mind in the early transition period.

• Identify the changes required to convert your accounting and point-of-sale systems to charge or pay HST, i.e. invoices, sales receipts, purchase orders, etc.

• If you have an ecommerce website, update your payment process to charge HST, where applicable.

• Reconfigure billing systems to collect GST and PST, as well as HST early enough in the transition period.

• Give your customers a heads up. A lot of businesses are concerned with the effect HST may have on sales due to the increase in pricing. One of the ways to address your customers’ concerns is by highlighting some of the pertinent benefits of the tax reform.

Probably the most intricate aspect of the transition period will have to do with maintaining accurate bookkeeping for agreements signed before June 30, 2010 but with goods or services delivered after that date. Any service or portion of service performed on or after July 1, 2010 is subject to HST, unless the portion is less than 90% of the service.

Using our company as an example, here’s how the Ontario HST charges would apply. A client signs a contract with us in May 2010 to design and develop a website for them.  The entire project takes 50 hours to complete, 30 hours before June 30/10 and 20 hours after. This means that the 20 hours of design and develop time spent on and after July 1/10 are subject to the 13% HST, regardless of when the contract was signed.  To throw a bit more math into the mix, if less than 5 hours are spent on the project after June 30/10, this time is HST exempt as it is less than 90% of the service.

Like any hefty initiative, it’s best to approach HST integration in small, reflective steps. That’s why we suggest that you start preparing your business early on. There are plenty of resources available including seminars throughout Ontario and B.C. By getting your business HST-ready ahead of time you’re not only more likely to foresee any extraneous circumstance but you’re also more likely to still enjoy some of your summer.

Comments

• “Any service or portion of service performed on or after July 1, 2010 is subject to HST, unless the portion is less than 90% of the service.”

  “To throw a bit more math into the mix, if less than 5 hours are spent on the project after June 30/10, this time is HST exempt as it is less than 90% of the service.”

  This sounds like you are saying it hinges on if less than 90% is completed after.

  Did you mean to say less than 10% after? [= more than 90% prior]

  i.e. if most of the work (> 90%) is done prior, the entire thing is billed at the old rates. If a more significant portion is completed after (>10%, so less than 90% is prior), then a split billing applies.

  Comment by JJS — May 13th, 2010

• If 90% or more of the work is completed after July 1, 2010 this is subject to HST.

  Comment by Marta LeClair — July 15th, 2010