The Ontario Harmonized Sales Tax (HST)

What businesses need to do to handle the HST after July 1, 2010

Last updated: October, 2010

Overview

As you probably know, the Ontario and BC governments have decided to implement a Harmonized Sales Tax (HST) to replace the existing provincial Retail Sales Tax (RST or PST).

At its simplest, if you charged GST before, you probably need to charge HST now. Whereas most companies charged their customers GST at 5% and sometimes charged 8% PST (we'll only deal with Ontario here), most previously GST-taxable products and services now have the 13% HST applied.

Companies will be able to offset the HST they collect with input tax credits (ITCs) of the amounts of HST they pay for goods and services, the same way they currently do for the GST (though there are restrictions on this at first for larger companies, who will not be able to claim full ITCs for up to five years).

As well, to defray some of the up-front costs of implementing this new tax, many companies will be eligible for a tax credit of up to $1,000 on their corporate tax for the 2010 tax year.

Why the HST?

The Ontario government says that it is implementing the HST to save money. By consolidating collection from two jurisdictions to one, they hope the HST will reduce costs for government and for business, enabling them to pass the savings on to their customers, making Ontario businesses more competitive. We won't go into details on whether we agree with that or not - the fact is that the new tax is here, and we all need to be able to process it.

This document will review the basics of the impact this will have on your business, and what you need to know to be sure you're handling it adequately.

What are each business's responsibilities?

If you previously collected and remitted GST, you now need to collect and remit HST. There are a number of changes that every business will need to make to ensure that they are collecting and remitting properly. You will most likely need to do at least the following:

Understand and communicate the new requirements

Every Ontario business will be need to educate themselves and their staff on the HST.

• You will need to be clear on what tax or taxes you need to charge on your products and services as of July 1, 2010. You may have some sales that attract the 13% HST, some that attract only the federal portion, for example. As well, you will see that some purchases you make now have the higher tax rate applied, and you need to be ready for that
• If unclear, you will need to obtain confirmation from the Ontario government and/or your accounting professionals as to the rates you should be charging, and when. A good starting place is the Ontario government's HST transition main page, which has a fair amount of useful information
• Educate your staff who will be processing HST-related transactions on what they should be doing, and why it is essential for them to be vigilant, especially during the transition period, as well as when these changes must start

Since there are many apparent gray areas, and since different clients of ours have been getting different advice from their accountants, we suggest strongly that you consult with your accounting professional if you have questions. If they cannot provide satisfactory answers, we suggest contacting CRA or the Ontario Ministry of Revenue

Update your accounting system

Here are some of the changes you will need to make in your accounting systems. If you use Sage BusinessVision, see the section below on what Sage is doing about the HST for BusinessVision users. Of course, most companies have now completed these steps, but we're leaving them here for late-starters and general reference.

What is Sage BusinessVision doing to assist in the transition?

As of May, 2010, Sage released a Sales Tax Change utility to help convert your data to make it HST-ready. We have tested this utility ourselves, and the process works as follows:

Manual steps to prepare

Before running the Utility, we'll need to do a number of steps:

• Backup your data
• Create any new required GL accounts to allow for tracking of the HST, HST input credits, and so on
• Create any new tax code(s) required - e.g., HST-ON, HST-BC, etc. Note that some clients have reported that their accountants have advised that federal taxes charged in ALL provinces must be shown as "HST", not "GST", even if those provinces are non-HST provinces; if this is the approach you want to take, you'll probably need an HST tax code for each province, each with the corresponding rate
• Change default tax codes for your company's data in the System Setup

Run the Utility to perform the following changes:

The Utility must be run once for each combination of tax codes you wish the system to update. The utility allows you to make the following selections each time you run it:

• The province to search for (e.g., ON, BC, etc.)
• The first & second tax codes to search for (e.g., 0001 = GST, 0002 = Ontario PST)
• The first & second tax codes to replace these with (e.g., 0010 = HST-ON, 0000 = None)
• Whether to update customer addresses (including Ship-To addresses); usually, you'll say yes to this
• Whether to update sales taxes on open sales orders and quotes; usually, you'll say yes to this
• Whether to update sales taxes on open purchase orders

Once you've made these selections, the screen should look something like this:

Once you click OK to run the utility, it will show you its progress on the progress bar at the bottom. On completion, you'll get a message that shows you it's complete. This message will indicate the name and location of a log file containing the detailed results.

Please note that it is very important that you make a copy of this log file before proceeding to make any more changes, as the next change overwrites the log, and you'll want to retain a record of all changes to assist with validating the results.

Other HST Resources

You may find the following links a useful place to start.

If you still haven't gotten up to speed on the HST, please call today to begin your action plan

If you need help to prepare for the HST rollout in Ontario, please contact us today to see what we can do to assist. This will not be overly difficult to implement for most clients, but planning and lead time are essential.