Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Make an HST Preparedness List and Check It Twice

Harmonized sales tax (“HST") will become a reality in Ontario and British Columbia on July 1, 2010. Well, that is not quite accurate, some businesses will be required to start collecting HST on May 1, 2010. In addition, some businesses outside the HST Zone ( HST Zone = Ontario, British Columbia, Nova Scotia, New Brunswick and Newfoundland/Labrador) will also be required to charge collect and remit HST to the Federal Government in accordance with the place of supply rules when the place of supply is within the HST Zone.

It is time to make a “To-Do" list to get ready for HST. In January, 2010, I prepared a “Preparing for HST" article that provided a list. The Canadian Federation of Independent Businesses (CFIB) put out an HST checklist this week, which is a good list.

I would also recommend that businesses make a list a check it twice. The CFIB list would apply for businesses with gross revenues less than $10 million. I am not only talking about the corporation, trust, partnership or sole proprietorship, I also mean the family of businesses that are related to each other as the threshold test would be applicable to persons and their related entities.

My checklist, which builds on the CFIB list is as follows:

√ Formulate an internal committee of persons who will oversee the HST conversion - the group includes more than top management and the tax specialist/chief financial officer. Plan to meet weekly and prepare checklists.

√ Calculate a budget to address HST conversion issues, including information technology programmers to update your systems and advisors on HST.

√ Contact the persons in your business responsible for information technology as they will be on the front-lines in updating your computer systems. In addition, the IT specialists are valuable resources in informing you of which systems need to be updated.

√ Conduct a sales side audit and determine whether the supplies made by your business are subject to HST. Your business may be required to charge HST on goods that were not subject to retail sales tax.

√ Update sales equipment (e.g. cash registers), computer systems, etc. in order to properly charge HST.

√ Ensure your invoices properly state whether HST is applicable, the HST rate, your GST/HST registration number, and all other information required by the input tax credit regulations.

√ Consider whether your business may offer point of sale rebates and make adjustments to record-keeping.

√ Conduct a purchase side audit and determine whether your purchases are subject to HST. HST will affect what you sell and what you buy. Purchase exemption certificates will no longer be usable when your business buys what were previously RST exempt goods, such as goods that are purchased to be resupplied.

√ Determine your largest expense items and review your largest contracts to determine what will change with the implementation of HST.

√ Identify which suppliers to your business may not be sophisticated enough about HST and ensure they charge the correct amount of HST. Since the Canada Revenue Agency may assess both suppliers and recipients, purchasers have a duty to check the invoicing of their suppliers.

√ Consider whether HST will affect your cash flow and make arrangements for credit. Commercial rent, inventory, electricity, production equipment & machinery, goods purchased for resupply, custom computer software, etc will be subject to HST (and was not subject to RST).

√ Review the transition rules to see when you must start to collect HST or pay HST (can be as early as May 1, 2010) and when you must self-assess HST.

√ Determine whether the restricted ITC rules apply to your business/related businesses. If your business is over the $10 million threshold, you will not be able to recover HST paid on certain purchases for the first three years of HST. You will be required to set up accounting records to track and report restricted input tax credits on a province-by-province basis. The reporting on HST returns will start on July 2010 GST/HST return, which must be filed electronically.

√ Determine whether you are required to file GST/HST returns electronically, what method of filing electronically your business must use and make arrangements to be able to file electronically starting in July 2010.

√ Determine whether the place of supply rules require your business to charge HST. If your business operates in more than one province, the assessment must be made on a province-by-province and supply-by-supply basis.

√ Set up accounting records for each applicable HST province.

√ Establish internal policies and procedures to ensure HST is properly charged

√ Prepare written materials for sales staff to follow (you would not want human errors due to lack of sharing of information.

√ Train your staff on HST.

√ Update sales equipment so that HST is charged at the point of sale.

√ Update computerized payments so that HST is charged where applicable. In some cases, computer programs will need to be rewritten/updated so that the place of delivery (e.g. goods) is reviewed in determining whether HST is applicable.

√ Adjust online payment software or web interfaces used for selling via the Internet (or receiving payments for services and intangibles via the Internet) to reflect the applicable HST rates.

√ Update the information communicated on web-sites.

√ Prepare and publish new written materials if the publications include information on sales taxes charged.

√ If you may supplies to the Government of Ontario or British Columbia and do not currently charge GST, you will have to start charging HST as early as May 1, 2010 depending on the facts.

√ Update internal computer/record keeping.

√ Update record keeping on input tax credit claims, rebates, refunds, etc.

√ Update accounts payable record keeping.

√ Update accounting records on meals and entertainment expenses.

√ Update taxable benefit calculations.

√ Update internal reports - e.g., expense reports spreadsheets, employee cars, inter company transactions, etc..

√ Determine whether your business must pay HST on imported goods, services and/or intangible property.

√ Determine whether any inter company payments are subject to HST and make adjustments to records and expectations.

√ Take steps to ensure that the business stops collecting retail sales tax/social services tax on July 1, 2010 and that the final returns are prepared

√ Prepare PST/RST/SST records to be audited as both Ontario and British Columbia have said they plan to conduct 4 years of audits in the next two years. I recommend scanning as much as possible on computerized files. I also recommend that you make sure your business has copies of all purchase exemption certificates on record. I also recommend that you undertake in internal audit to ensure your records are complete.

√ Consider whether the job descriptions of employees need to be updated to reflect HST responsibilities.

√ Training - educate your employees - not just sales staff.

√ Public relations - consider whether you need to educate your customers about HST.

This list is not all-inclusive and your business may need a longer or shorter list.

If you require specific advice or assistance, please contact Cyndee Todgham Cherniak at 416-307-4168.

 

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