INDIRECT TAX
Harmonized Sales Tax Primer
for Public Libraries
presented to
Ontario Library Association
Super Conference 2010
Barbara Warren
February 25, 2010
Presentation Overview
1.
Terminology and Basic Concepts
2.
HST Considerations
3.
HST – General Overview
4.
Differences Between GST and HST
5.
MUSH Sector HST Rebate Rates
6.
Designation / Determination as Municipality
7.
HST – Considerations for Implementation Strategy
8.
HST – Impact on Libraries and Other NPOs
9.
Book Rebates
10.
Transitional Rules, Calculations, “Tips and Traps”
11.
Importations
12.
Planning Points – Purchase, Sales, Cash Flow
13.
Planning for Implementation – Processes and Procedures
14.
Last Look at PST
15.
For Further Information
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(“KPMG International”), a Swiss entity. All rights reserved.
2
Terminology and Basic Concepts
HST: Harmonized Sales Tax
GST: (Federal) Goods and Services Tax
PST: (Ontario) Retail Sales Tax / Provincial Sales Tax
ITC: Input Tax Credit. Essentially, a “refund” of GST and HST
paid on “inputs” (expenses)
MUSH: Municipalities, Universities, Schools, Hospitals.
Generally cannot claim ITCs for the GST/HST that they pay.
Some libraries may be Municipalities.
NPO: Non-Profit Organization (includes libraries)
PSB: Public Sector Body. Generally all levels of government,
plus NPOs, charities, MUSH sector entities. Libraries are PSBs.
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(“KPMG International”), a Swiss entity. All rights reserved.
3
Terminology and Basic Concepts
Generally speaking most sales/supplies made by
libraries are exempt of GST and will be exempt of
HST
Means: no GST or HST charged, but GST/HST paid on
expenses cannot be directly claimed as an input tax credit
Instead libraries apply for a rebate of a percentage of the
GST/HST paid on costs
Percentages vary (see “MUSH Sector Rebates” slide)
E.g. tickets to fundraising events with donation receipt, sales of
goods/services at a fundraiser, memberships
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(“KPMG International”), a Swiss entity. All rights reserved.
4
Terminology and Basic Concepts
Borrowing privileges (e.g., library card) exempt
supply for GST purposes; will remain exempt under
HST
Fines for overdue materials not subject to GST and
will not be subject to HST
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
5
Harmonized Sales Tax - Considerations
How much
will it cost?
Will we need to
hire and budget
for external
resources?
Will our
IT
systems
be
ready?
Should we
develop a
detailed
implementation
plan?
Ontario Budget
March 26, 2009
What is our
implementation
strategy?
What are the
differences
between GST
and HST?
What about tax
saving
opportunities?
How will
our cash
flow be
affected?
Should we
review our
treatment of the
GST versus the
new HST?
Do we need an
internal
implementation
Committee?
Should we
provide
GST
refresher
training?
Harmonization
July 1, 2010
Can our software
handle the
required changes?
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
6
HST – General Overview
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
7
HST – General Overview
Effective July 1, 2010
Ontario PST substantively repealed
HST comes into force for supplies “made in” Ontario
13% (5% federal component; 8% provincial component)
Generally same rules and tax base as GST; some differences
HST applies to many items not subject to PST, e.g. most services
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
8
HST – General Overview
Reduced compliance:
No more Purchase Exemption Certificates
Reduced complexity
One tax
One return, one administration (CRA), one audit
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
9
HST – General Overview
HST same as GST subject to following exceptions
Tax rates
Point-of-sale rebates for books and newspapers
Input tax credit restrictions
5% GST only collected on commercial imports (self-assessment
may be required)
Public sector body rebates calculated at different rates
New housing rebates calculated on different amounts
Province of Ontario to pay HST
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
10
HST – General Overview
Currently not subject to PST; will become subject to
13% HST:
Real property leases, licences
Real property contracts (construction, management,
maintenance)
Energy (gas, electricity)
Energy re-charged to tenants as rent
Lease inducements
Intangibles (rights)
Services in general (consulting, laundry, dry cleaning)
Sales to provincial governments
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
11
HST – General Overview
PST Holdovers
8% Ontario Retail Sales Tax on insurance premiums will be
retained under HST regime
Self-assessment requirement will remain to the extent that risk
relates to Ontario and 8% tax not charged on premiums
Insurance premiums remain exempt for GST purposes
10% Excise Tax on insurance placed with nonauthorized insurer will not be affected by Ontario or
B.C. harmonization
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
12
HST – General Overview– ITC “Recapture”
Libraries are generally “Public Sector Bodies”
Public Sector Bodies not required to
“recapture” 8% provincial component of ITCs
claimed on certain costs:
Energy, exception for farms or used to produce TPP for sale
Telecommunication services other than internet or toll-free
numbers
Vehicles (less than 3,000 kg), parts, certain services, fuel to
power
Food, beverages, entertainment
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
13
Differences GST/HST
Mush Sector Rebates
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(“KPMG International”), a Swiss entity. All rights reserved.
14
Differences Between GST and HST
GST
HST
Federal book rebate for 100% of the
GST component of HST paid on
books (but not newspapers) by Public
Libraries
Point-of-sale rebate for 8% provincial
component of HST on purchases of
books and newspapers at any stage in
distribution chain
New input tax credit (ITC) recapture
for Large Businesses
PSBs, including libraries, not subject to
these recapture rules
MUSH partial rebates – Different rates
How to track and claim will add
administrative complexity!
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
15
MUSH Sector – HST (Partial) Rebate Rates
Entities
Rebates for 5%
Federal Component
Rebates for 8%
Provincial
Component
Municipalities
100%
78%
Universities and Colleges
67%
78%
Schools
68%
93%
Hospitals
83%
87%
Charities and Qualifying NPOs
50%
82%
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
16
Designation/Determination as Municipality
Some libraries may have applied for designation or
determination as a municipality for GST purposes
100% rebate for GST paid by municipalities effective
February 1, 2004
Libraries that are not designated/determined as
municipalities: entitled to 50% rebate as “qualifying
NPO??
Consider whether advantageous to apply for
municipal designation or determination
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(“KPMG International”), a Swiss entity. All rights reserved.
17
Designation/Determination as Municipality
Municipality:
Incorporated city, town, village, township, district, county, rural
municipality or other incorporated municipal body
Public library that is a separate entity but controlled by a
municipality may apply to Minister of National Revenue to be
determined as a municipality
Can also apply to be designated as a municipality in respect of
certain services that it delivers
Being a Municipality is a Good Thing:
Federal rebate rate 100% vs. 50%
But provincial rebate rate 79% vs. 82%
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
18
HST – Considerations for
Implementation Strategy
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
19
HST – Considerations for Implementation
Strategy
HST will affect and require:
Internal operating budgets
IT resources
Staff training
Improved internal controls
Cost of errors increases from 5% to 13%
Not just a rate change as in the past!
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
20
HST – Considerations for Implementation
Strategy
Cost impacts
Pricing requirements: will you have to increase any prices?
Cash flow - e.g. tax on premises rent will increase to 13%
from 5%
Any planning opportunities?
Systems changes
Sales, purchasing and accounting systems all affected
Tax tables / matrices
Tracking two taxes
Tracking two rebate rates
Imported vs. domestic sourced purchases
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
21
HST – Considerations for Implementation
Strategy
Allocation methodologies – commercial vs. exempt use –
is GST charged on any supplies?
Staff training
Existing GST knowledge
New HST reporting obligations
Possible electronic filing requirements
Seek designation or determination as a municipality??
(100% rebate of federal component)
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
22
HST – Impact on Libraries
and Other NPOs
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
23
HST – Impact on Libraries and Other NPOs
Goal of rebates for NPOs, charities, MUSH sector -generally result in neutral impact
Elimination of non-recoverable PST will reduce costs
to libraries’ suppliers, e.g.:
Construction
Transportation
Manufacturing
Possible pass-through of suppliers’ savings??
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
24
HST – Impact on Libraries and Other NPOs
Benefits (savings): Removes “sunk PST cost” in
Computer hardware and software
Telecommunications
Most purchases of furnishings and equipment
Office supplies
New construction
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
25
HST – Impact on Libraries and Other NPOs
Additional Tax Cost:
Libraries planning new construction or renovations (review tax
clauses in contracts)
Premises rent (now 13% instead of 5%)
Services (cleaning, landscaping, snow-clearing, etc)
Land acquisitions not used in commercial activities
Professional services, consulting fees
Rebate rates designed to “neutralize” additional tax
cost
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
26
HST – Impact on Libraries and Other NPOs
Cash flow consideration for purchases currently
PST exempt that will be subject to 13% HST
“Inventory”, other than printed and recorded books:
music, movies, etc.
Real property leases
Purchase of real property
Repairs to real property
Signs
Custom software
Services
Municipalities or charity/NPO rebate may be
available
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
27
Book Rebates
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
28
GST (October 1996) and HST Book Rebates
Existing GST book rebate available for:
printed books (certain exclusions);
audio recordings (e.g. cassette, CD) of books;
bound or unbound printed versions of religious scriptures
Cannot be acquired for resale (“sale” includes gift)
Not a point-of-sale rebate: GST is paid up front then
claimed using the public service bodies rebate form
HST: Ontario portion (8%) will be point-of-sale
rebate; federal portion (5%) will continue to be postpurchase rebate
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
29
GST Book Rebate and “Combined Supplies”
Printed book + another item packaged together and
sold for single price: may be a single, new product
that is not a “printed book” as defined
Software (taxable) + manual (book?): if manual is
“incidental” to software, entire product considered
software and taxable; no rebate for manual
Book + music CD sold for single price: likely neither
is incidental to the other; price must be allocated
between the book and the CD
Only part attributable to book would give rise to
rebates
Will Ontario adopt same administrative policy?
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
30
Transitional Rules
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
31
HST Transitional Rules - Timeline
No
HST
October 15, 2009
to April 30, 2010
May 1, 2010
to June 30, 2010
No HST Collected on Prepayments;
Recipient Self-Assesses on
Provincial Portion if Cannot Claim
Full ITCs (e.g. FIs, PSBs)
Suppliers
Collect HST on
Prepayments
Release Date
(October 14, 2009)
HST
Applies
to
Supplies
Harmonization
July 1, 2010
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
32
HST Transitional Rules – Key Dates
October 15, 2009 – April 30, 2010: Self-assessment
of provincial component of HST by entities (e.g.,
libraries and other PSBs) that cannot recover full
ITCs on consideration paid for goods/services
provided after June 30, 2010.
May 1 – June 30, 2010: Suppliers pre-collect HST
on goods/services to be provided after June 2010.
Equipment leases, maintenance agreements, licences of
software
July 1, 2010: HST implementation date. HST
generally applies to consumption on or after this
date.
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
33
HST Transitional Rules – Self-Assessment
General Rule: Self-assess HST if
Consideration payable after October 14, 2009 and before May 1,
2010 and
Goods or services delivered on or after July 1, 2010
No self-assessment if
Purchaser is a consumer; or
Purchaser is a business entitled to a full input tax credit
Libraries pre-paying for goods to be delivered or
services to be performed on or after July 1, 2010 may
be required to self-assess 8% provincial component
of HST
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
34
HST Transitional Rules – Sale of Goods
HST applies if goods delivered and ownership
transfers after June 30, 2010
Prepayments for post-June 2010 sale and delivery:
October 15, 2009 – April 30, 2010: supplier collects GST only;
PSB purchaser self-assesses 8% provincial component and
remits in return that includes July 1
May 1, 2010 – June 30, 2010: Supplier pre-collects HST
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
35
HST Transitional Rules – Sale of Goods
Delivery and
Ownership
transferred
Delivery or
Ownership
transferred
Oct 14,
2009
May 1,
2010
July 1,
2010
1) Basic Rule: focus on delivery and ownership
2) Prepayments:
i.
Vendors charge HST on consideration billed or paid on or after May 1, 2010
ii.
After October 14, 2009 and before May 1, 2010: PSB purchaser selfassesses 8% provincial component (unless acquired for exclusive use in
commercial activities)
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
36
HST – Transitional Rules
Subscriptions
Newspapers, magazines and similar periodicals
No HST if paid on or before July 1, 2010
No self-assessment required even if subscription period includes
periods after June 2010
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(“KPMG International”), a Swiss entity. All rights reserved.
37
HST Transitional Rules – Non-Residential
Real Property Purchases
Both ownership and possession transfer to
purchaser after June 30, 2010: HST applies
Either ownership or possession transfers to
purchaser before July 1, 2010: GST applies
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
38
HST Transitional Rules – Real Property
Lease, Licence, Similar Arrangement
HST applies to portion of lease interval that occurs
after June 30, 2010
Lease for January 1, 2010 – December 31, 2010; lease
payments due 1st of each month:
GST only on first 6 lease payments
HST on lease payments beginning July 1, 2010
Exception: payment for lease interval that begins
before July 2010 and ends before July 31, 2010
Lease interval June 15, 2010 – July 15, 2010; paid
June 15, 2010
GST at 5% on full amount; no HST
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
39
HST Transitional Rules – Real Property
Leases
Exception where lease interval begins before
July 2010 and ends before July 31, 2010:
Lease for June 1 – July 31, 2010; 1 lease payment due
June 1, 2010
Lease interval began before July 2010 but does not end before
July 31, 2010
HST applies to portion of lease payment attributable to
July (50%)
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(“KPMG International”), a Swiss entity. All rights reserved.
40
HST Transitional Rules – Leases, Rentals
Rental
period
Rental
period
Oct 14,
2009
May 1,
2010
July 1,
2010
1)
Basic Rule: HST applied to portion of rental period post June 2010
2)
Exception: GST (not HST) if period starts before July 2010 and ends before July 31, 2010
3)
Prepayments:
i.
Vendor charges HST on consideration due or paid on or after May 1, 2010 for any period
or portion thereof relating to after June, 2010
ii.
After October 14, 2009 and before May 1, 2010: purchaser self-assesses 8% provincial
component if not acquired for exclusive use in commercial activities, or if ITCs restricted
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
41
HST Transitional Rules - Services
Also includes (non-lifetime) memberships and admissions
Services performed after June 30, 2010: HST applies (exception
if 90% of service performed before July 1, 2010)
April 1, 2010
July 1, 2010
October 31, 2010
Cleaning Services
GST
HST
* Invoice
HST applies to portion of service performed after June 2010
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
42
HST Transitional Rules - Services
Exception: No HST if “all or substantially all” (90%)
of service performed before July 1, 2010
August 1, 2010
April 1, 2010
July 1, 2010
Cleaning Services
GST
* Invoice
GST only on entire invoice
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
43
HST Transitional Rules - Services
Services
Performed
Services
Performed
Oct 14,
2009
May 1,
2010
July 1,
2010
1)
Basic Rule: focus on when services are performed
2)
Special Rule: If ≥90% performed before July 2010, GST (not HST) applies
3)
Prepayments:
i.
Vendor charges HST on consideration billed or paid on or after May 1, 2010 for services
performed after June 2010
ii.
After October 14, 2009 and before May 1, 2010: purchaser self-assesses 8% provincial
component if not acquired for exclusive use in commercial activities, or if ITCs restricted
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
44
Non-Residential Real Property Contracts Progress Payments
Contract to construct, renovate, etc. real property:
HST applies to progress payments to extent
reasonably attributable to property delivered /
services performed after June 2010
Exception to general rule for collection of HST on
prepayments: If progress payments for post-June
2010 work are due or paid after October 14, 2009 and
before July 1, 2010: supplier must charge HST
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
45
HST Transitional Rules – Intangible Property
Intellectual property; contractual rights
E.g. software licence for 2010 due on January 1, 2010
ORST applies to 50% (January through June);
vendor should collect PST on only 50% of charge
Library that is licensee required to self-assess 8%
provincial component of HST for remaining 6 months
(if not entitled to recover full ITCs)
Library entitled to claim rebate for provincial
component
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
46
HST Transitional Rules – Intangible Property
E.g. software licence for May 1, 2010 – April 30, 2011
due on May 1, 2010
Licensor should collect ORST on 2/12th of charge,
and HST on 10/12ths
No self-assessment requirement – HST has been
pre-paid
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
47
HST Transitional Rules – Services,
Intangibles
Libraries that pay annual contracts before May 2010
E.g. cleaning, maintenance, HVAC
Service provider should charge GST only
Service provider should not charge any HST
Library required to self-assess 8% provincial
component (because cannot recover full input tax
credits)
Library claims rebate (78% if municipality) for
provincial component self-assessed
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
48
Self-Assessment Calculation
Example: $10,000 building maintenance contract,
April 1 2010 – March 31, 2011, paid April 1, 2010
Supplier charges 5% GST on entire amount ($500)
Supplier does not charge PST or HST on any portion
of contract
Library self-assesses $10,000 x (9/12) x 8% = $600
78% municipalities rebate = $600 x 78% = $468
Offset rebate against tax self-assessed; net to remit
= $132
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
49
HST Transitional Rules – “Continuous
Supplies”
Includes property or services supplied by means of
Wire, pipeline or similar conduit
Satellite or other telecommunications facility
Examples
Natural gas, Electricity
Cable television, Satellite television
Cellular telephone services
Vendor collects HST on that part of the supply that reasonable
relates to post-June 30, 2010
Alternative: consideration pro-rated by number of days in billing
period
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
50
Self-Assessed HST – Timing of Remittance
Pre-collected HST remitted in “stages”
5% GST component remitted in GST return for reporting period
during which collected
8% provincial component remitted in HST return for reporting
period that includes July 1, 2010 (due August 31, 2010 or
October 31, 2010)
Same principle for rebate claims for HST i.e. claim
rebate for 5% GST component first, and rebate for 8%
provincial component in claim for period that
includes July 1, 2010
© 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
51
HST Transitional Rules – Considerations
Is system prepared to start charging and paying proper amount
of tax on May 1, 2010 taking into account:
Nature of supply
Place of supply (rules not yet released)
Transitional rules
Point of sale rebates
Is system prepared to start self-assessing provincial component
of HST for pre-payments before May 1, 2010?
Can invoicing/payables system deal with GST, HST and PST?
Is the system taking into account self-assessments?
Are suppliers charging PST in error on prepayments?
Should a refund claim be filed for PST paid in error?
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Transitional Tips and Traps
Annual contracts subject to PST (e.g. software
maintenance) paid before May 1, 2010: did supplier
charge PST on post-June period? If so, apply for
refund for 6 months’ portion
Even if PST was charged in error and refund applied
for, library must self-assess the 8% provincial
component of HST
Keep file of copies of supplier invoices straddling
implementation; double-check in September/October
for self-assessment and refunds of PST over-charged
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Importations
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HST and Goods Imported into Ontario
Affects libraries and other PSBs
Self-assessment of Ontario component of HST may be required
on international / interprovincial importations
Only 5% GST to be collected at international border
Generally, self-assessment required where full ITC not
recoverable had HST been paid on input (affects PSBs)
Watch out for services not previously subject to PST, e.g.
electricity
Also applies to prepayments for goods/services to be delivered
after June 30, 2010
Self-assessment of full 13% may be required on imported
services
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Planning Points – Purchases,
Sales, Cash Flow
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HST – General Planning Points
Conduct impact analysis to estimate
net cost to organization and
changes to funding requirements
Plan for modifications to tax codes in systems
Review impact on long-term contracts and consider options for
renegotiation
Consider deferring purchases of PST-taxable items (computer
systems, administrative equipment, furnishings) – take
advantage of post-June 30 rebates
Accelerate purchases of PST-exempt items (custom software) to
avoid additional 8% cost (before rebates)
Ensure consultants’ and professional fees are invoiced by June
30, 2010 (subject to transitional rules)
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Planning – Purchases
Cash flow implications: tax charged by many
suppliers will increase by 8%; partly or fully
recoverable by rebates but must be funded
Lease (as lessee) of real property
Purchases of real property
Maintenance and repairs to real property
Signs
Custom-written software
Professional services (accounting, property management,
security, services related to real property)
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Planning – Purchases
Lease instead of purchase before July 2010
Reduces PST burden from 8% of full purchase price to 8% of
lease payments
Improves cash flow
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Planning – Capital Projects
Long-term capital project straddling July 1, 2010
Entered into pre-announcement date
Contract price reflects 8% Ontario PST cost to
contractor of materials used in contract
Renegotiate contract to obtain benefit of elimination
of PST (8% of materials burden? 2% of overall
contract price?) after June 30, 2010
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Planning – Capital Projects
Review existing tax clauses
e.g. “Any decrease in costs to Contractor due to changes in taxes
after bid closing shall decrease the Contract Price accordingly”
Post-implementation
If contract price is “inclusive of all taxes except Value-Added
Taxes”, is definition of “Value-Added Taxes” broad enough to
include HST?
If not, consider amendment to contract
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Planning – Capital Projects
Review to see if tax-inclusive or tax-extra
Which is more beneficial?
Contracts that straddle implementation
Revisit where opportunities exist, clarify wording
Review tax clauses
Consider effect on damages / termination payments: if taxinclusive, need to be grossed up to account for additional 8%
Is rate of tax charged correct according to “place of
supply” rules?
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62
Planning for Implementation –
Processes and Procedures
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Planning for Implementation – Processes
and Procedures
Systems update to accommodate singe tax
return
Templates need updating – expense reports,
matrices
Systems testing needed after implementation
Training
Record retention
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Planning for Implementation – Processes
and Procedures
Establish an implementation committee
Consider impact on:
Budgets, revenues, cash flow
Sales, purchasing and other systems
Documentation
Pricing strategies
Consider implementing
Internal communications strategy
Internal learning strategy
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Planning for Implementation – Processes
and Procedures
Incorporate into budgeting process
Review existing contracts:
Sharing of any PST savings?
Adding Ontario HST references
Government contracts
New contracts and bids
Review provisions for damages / termination
payments
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Planning for Implementation – Processes
and Procedures
Sales (POS, Billing and A/R Systems)
Do tax coding and invoices need to be adjusted to take into
consideration different rates of tax: 5%, 13%?
Does the current ORST rate need to remain in the system for a
transitional period to take into consideration adjustments post
implementation?
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Planning for Implementation – Processes
and Procedures
Purchases (AP systems)
System must be capable of handling different rebate percentages for
federal vs. provincial component of HST
Critical for book purchases: Programming required to track provincial
component of HST (point-of-sale rebate for 8%) vs. federal component
(post-sale rebate for 5%)
Ensure that federal book rebate claimed for 5% only, not 13%!
Ensure that federal and provincial rebates claimed for other qualifying
expenses at appropriate rates
Employee expense reports templates will need modification
Current process to self-assess ORST needs to be amended; some selfassessment of Ontario component of HST likely required
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Planning for Implementation – Processes
and Procedures
Other Preparation
Customer literature? Website information?
Pricing information?
Customer/Landlord/Tenant communication?
How to approach suppliers, contractors: responsibility?
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69
Last Look at PST
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70
As The Curtain Rings Down on the PST . . .
Last chance to apply for refunds
Audits, Assessments
4-year window
When will they stop auditing PST?
Recent appeal of TTC case by Ontario: not giving up easily
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HST Links
KPMG
http://www.kpmg.ca/en/ms/pstgst/
Ontario Ministry of Revenue
http://www.rev.gov.on.ca/en/taxchange/index.html
Draft provincial legislation and other official
documents
http://www.fin.gov.on.ca/en/index.html
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Presenter’s contact details
Barbara Warren
KPMG LLP
(416) 777-3541
bwarren@kpmg.ca
www.kpmg.ca
Information is current to February 19, 2010. The information contained herein is of a general nature and is not intended to address the
circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee
that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such
information without appropriate professional advice after a thorough examination of the particular situation.
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