Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Suppliers to the Ontario Government Will Have to Start Charging HST As Early As May 1, 2010

As the present time, the Ontario Government does not pay goods and services tax on any supplies of property and services. The reason is that the Federal Government does not currently pay goods and services tax is that it cannot, pursuant to the Canadian Constitution, impose a tax on a provincial government.

However, this will change with the implementation of harmonized sales tax (HST). Pursuant to the Comprehensive Integrated Tax Co-ordination Agreement between the Government of Canada and the Government of Ontario (the "CITCA"), Ontario has agreed to pay HST on all of its purchases of goods and services. The relevant provisions of the CITCA are as follows:

Part XVI

Government Purchases

51. Canada and the Province agree to pay the harmonized sales taxes in respect of supplies acquired by their respective governments or by agents and entities thereof.

52. Where inter-jurisdictional immunity from taxation applies, any harmonized sales taxes paid by Canada or the Province, as provided for in clause 51, will be subject to rebate on application to the Minister of National Revenue, except to the extent that any such taxes are payable under any agreement regarding the reciprocal payment of sales or commodity taxes as between Canada and the Province or are otherwise recoverable.

53. In the case of the provincial government or of agents and entities thereof, any rebates payable under clause 52 shall be made on a bi-weekly basis and, at the direction of the Province, shall be paid either to the Province or to the government entity of the Province which paid the tax and which is identified as the recipient of the rebate in the application therefor.

Currently, the Government of Ontario may pay retail sales tax at the rate of 8% on most goods (except exempt goods) and taxable services (as defined in the Retail Sales Tax Act).

What this means is that most vendors collection obligations will increase from 0% to 13% or from 8% to 13% when they sell to the Government of Ontario. The vendors to the Government of Ontario must implement in these changes and the collection obligations may start as early as May 1, 2010. in any event. all vendors to the Ontario Government must be charging, collecting and remitting HST in respect of supplies made after July 1, 2010.

Whether HST must be collected will depend on the specific facts. For example, pursuant to the transition rules, HST will be payable on service contracts relating to services provided after July 1, 2010 if the date of the contract is after May 1, 2010 and the payment is made after May 1, 2010. If a vendor sells goods pursuant to an existing long term contract for the sale of goods and the goods are delivered after July 1, 2010 and are paid for after May 1, 2010, HST will be applicable.

It is important to note that there are serious issues as to whether the Canada Revenue Agency will consider HST collectible on all money received from the Government of Ontario, including certain forms of funding. An analysis is required on a case by case basis.

The Ontario Government has not issued any Notices about this tax change ---- maybe because they will benefit from vendors' errors.

If you have any questions, please do not hesitate to contact Cyndee Todgham Cherniak at 416-307-468.

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