Preparation is key to reaping rewards and avoiding pitfalls as the implementation of the harmonized sales tax (HST) in Ontario and British Columbia looms, according to a veteran tax expert.
“Worries are not non-extistent, but they are small compared to the relative benefits,” said Peter Budreski, chartered accountant and consultant to small and mid-sized firms.
He said preparing for the transition will greatly reduce the pain of the change and position small and mid-sized firms to reap the rewards of HST.
For instance, businesses must make sure their tax software tools have been patched or updated to accommodate the HST, said Budreski. In Ontario for instance, the government has earmarked $400 million for accounting software replacement assistance to SMBs, he noted.
On July 1, 2010, the goods and services tax (GST) and the provincial sales tax (PST) will be merged into the HST in Ontario and BC.
The Ontario government claims the move will save businesses $500 million annually in compliance costs. When fully implemented, the HST will save $4.5 billion annually.
General transition rules for Ontario are available here.
Transition rules for BC can be found here.
The HST will be 12 per cent in BC and 13 per cent in Ontario. The HST will apply to goods and services now subject to the GST.
Businesses should take note of the following dates: March 31, 2010 – End of vendor compensation; July 23, 2010 – Final retail sales tax (RST) return due
Budreski, who also helps owners of small and mid-sized companies set up their QuickBooks accounting software, said the transition will generally mean less cost and complication for many of these firms, although many consumers might cry foul.
“There will probably be a backlash from consumers who will feel they are going to be charged more taxes over a wider range of products,” he said.
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“Some business owners in Ontario will also complain that they will be paying a higher HST rate than their counterparts in British Columbia,” Budreski added.
Ontario SMBs seeking lower HST rate
Businesses in Ontario would want to see the HST in the province dropped to 12 per cent.
“We’d love to see it come down. That would go a long way towards improving both consumer and business acceptance of the HST,” said Catherine Swift, president of the Canadian Federation of Independent Business (CFIB).
Customer reaction is the biggest challenge of CFIB which has some 105,000 member businesses across the country, said Swift.
In a recent survey of 3,000 CFIB members in Ontario, a section of those polled perceived some benefits from HST.
Thirty-five per cent of those polled pointed to a reduction of paperwork, while 22 per cent cited increase in input tax credits, among the major benefits of the harmonization. Seventy five per cent, however, expressed concern over being required to charge higher tax rates on their firm’s goods and services.
Forty-four per cent anticipate a subsequent growth in the underground economy. “This is likely a direct consequence of the threat of higher tax rates,” a CFIB statement said.
“Governments have clearly dropped the ball in their handling of this critical tax reform initiative,” said Satinder Chera, director of CFIB for Ontario.
He said the lack of adequate public consultation on the move has generated “mixed reviews and serious concerns within Ontario’s small business community.”
How small firms can prepare
“Ontario SMB owners should view the HST simply as 13 per cent GST to simplify matters,” said tax expert Budreski. The HST will bring together the five per cent GST and eight per cent PST.
“With the HST, businesses will be dealing with a single tax authority. This will greatly reduce the complexity of deciding which type of tax should apply to which goods and services,” he said.
Typically numerous businesses face fines and penalties for failing to apply the proper tax on products they sell and services they render to customers, Budreski said.
The simpler rules, he said, will also cut down expenses and time spent on figuring out and complying with tax dues.
Budreski also reminded business owners to check out HST transition packages the Ontario government is offering.
The province is providing $400 million in one-time transition assistance to SMBs to assist with point-of-sale and accounting systems change required to collect the HST.
This transition assistance of up to $1,000 will be available for GST/HST registrants, other than financial institutions in Ontario that make taxable supplies and have less than $2 million in annual revenue from taxable sales.
Businesses should not delay in mapping out their HST transition strategy, said Chris Davey, senior marketing manager, global business division for Intuit, the makers of QuickBooks financial software.
“The transition period starts May 1. Start by doing the research and getting a handle on how the HST will affect your business,” he said.
He noted that every business is different and will likely react to the HST is a different manner.
Many firms will be better off using an accounting or financial software program, Davey added. “Ditch the shoebox. Use the transition to HST as an opportunity to get better organized.”
Budreski also cautioned business owners against “trying to go it alone.”
“You are probably better off seeking the advice of a chartered accountant or certified general accountant. They have prepared for this and have studied the transition’s various angles.”
When picking a financial advisor, Budreski recommends choosing someone familiar with the accounting software you are using.
He also advised SMB owners to contact their accounting software dealer or publisher to determine if the product will be able to handle the HST changes or if upgrades and patches are available.