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Important Points About the Transition to HST

07/12/2009


Senior officials from the Ministry of Finance recently clarified some important points about the impending transition to HST.

A significant point was that the current GST return will change and there will be more items to report. What's not clear yet is exactly what the final return will look like, and whether you will report the provincial component of the HST separately.

Restricted ITCs (Input Tax Credits)

Certain Ontario and BC businesses will need to separately report the ITC restrictions for the provincial component of the HST on:

  • Energy (including electricity, natural gas, etc., but not including energy used directly in manufacturing or farming)
  • Road vehicles (weighing less than 3000 kg) (including repairs and maintenance of these)
  • Telecommunications services (not including access to internet services or 1-800 and 1-888 fees)
  • Meals and entertainment.

These restrictions apply to organizations (including all associated persons for GST purposes) with gross sales of $10 million or more in a year as well as financial institutions. This will certainly be an easy target for GST/HST auditors.

What Should Your Business Do?

You should speak with an indirect / commodity tax specialist to figure out if this applies to your company. We need to determine the best way for each client to comply, depending on their unique situation. Some questions to consider include:

  • How do we determine how much utilities are used directly in Manufacturing or farming?
  • If cell phones are bundled with the telecommunication service fees, do you include both charges?

One thing is certain: you will need to adjust your accounting systems and processes to prepare for the change. An MNP tax specialist can help you navigate the new tax to better understand the changes you will need to make or please contact a local MNP advisor.