Harmonized Sales Tax

Confession: I’ve never really paid much attention to the HST. Here in Quebec, we have the GST and our very own QST, and that’s been enough for us to handle so far.

Simon, Garfunkel, Ontario and B.C. - All harmonizing these days.

But things are about to change drastically, and unless you’ve just come over on the boat from PEI, you must be aware that most of us now have to pay closer attention to the HST.

First of all, Ontario and B.C. are about to implement the HST. The provincial retail sales tax systems, therefore, will be eliminated, and one tax rate will apply to their goods and services. Ontario’s rate will be 13% and B.C.’s is 12%.

There will be new “place of supply” rules that will determine whether, and at what rate, suppliers located outside a particular province must charge the HST to their customers.

For example, if you are a lawyer residing in Quebec, and you provide a service to a person who is resident in Ontario, you may now have to charge 13% HST as opposed to just the 5% GST on your services. This does not mean that you will have to register in for the HST in Ontario. Anyone who is registered for the GST will have the obligation and the ability to charge the full HST where it applies, in lieu of the GST. No new HST registration number is required.

Place of Supply Rules for Tangible Goods

In the case of a sale of tangible goods, the place where the goods are delivered, or made available to the recipient will determine the tax rate. If you make arrangements to deliver goods, for example from your warehouse in Ontario to a customer in Nova Scotia, then their 15% rate of HST will apply, even if title passes in Ontario. These rules have been in place since the beginning of the HST.

New Place of Supply Rules for Services and Intangible Personal Property (“IPP”)

The biggest change will be seen by registrants who supply services or IPP  to customers in HST provinces. Generally, under the new rules, HST on services will be charged based on the address of the customer. If the customer has more than one address, then the charge is based on the address that is most closely related to the service. If no address is obtained, then the we must look to where the service is performed.

There are many exceptions to the above rules. Services that relate to real property or tangible personal property must bear tax based on the location of the property or goods at the time the services are performed.

Personal services (other than consulting, advisory or professional services) that are performed in the presence of the recipient are taxed where the services are performed.

The new HST rules will come into effect for services provided and goods delivered on or after July 1, 2010, but there are a number of complex transitional rules to be navigated.

The CRA’s website has plenty of information on the transition for Ontario and B.C., and the Department of Finance is where you will find the regulations concerning the new place of supply rules. I would strongly suggest that anyone who does any business with customers in an HST province take the time to prepare for the changes.

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