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Managing the Harmonized Sales Tax - How will the HST affect Cross-Provincial Shipping?

15/06/2010


​​​If you are a business that offers services or ships products to other provinces, it may be time to talk to an indirect tax specialist. Many businesses in B.C. are not as prepared for the HST as they should be. While the Government has already announced the bill that will enforce HST, many businesses are waiting for the legislation to be passed before they take the necessary action. This could be a costly mistake. If you haven’t looked at how HST will impact you and your cross-provincial business dealings, here’s a quick snapshot of what you need to know.

The Facts
If you are registered for GST, you are automatically registered for the HST. This combined tax is comparable to the HST that exists in the three Maritime provinces that harmonized their sales taxes with the GST more than a decade ago. Effective July 1, 2010, B.C.’s and Ontario’s Provincial Sales Tax (PST) will be eliminated and replaced by the HST. From this date forward, sales of goods, services, certain real property and intangibles “supplied” in B.C. will be taxed at 12% HST.

Tangible Personal Property
When it comes to selling tangible personal property, you need to consider the location or address of the recipient of the property. This includes property that is delivered via truck or mail courier. Ultimately, the rate of GST or HST to be applied to a particular sale is going to be dependent on where the property is delivered.

Services in General
There are a number of significant changes for cross-provincial services. The general rule of thumb is that a service will be subject to tax based on the tax rate where the purchaser is located. There are currently four rules each with hierarchal order.

Rule 1: GST or HST is applied based on the recipients address; most closely connected with the supply.That particular address will be used to determine the appropriate GST or HST rate.
Rule 2: If a Canadian address cannot be obtained, then the rate of tax will be will be based on where the greatest proportion of the service is performed.   If the service is performed more than 50% in an HST province then the service will be taxed at that HST provinces tax rate.
Rule 3: If Rule 2 applies but a vendor cannot establish a single province where the greatest proportion of service is performed (due to service being equally performed), than the service will be regarded as being made in the province with the highest HST rate.
Rule 4: If Rule 3 applies, and the service is performed equally in two HST provinces with the same rate of tax, then the vendor is required to charge that rate of HST on the transaction.

Services Delivered in a Location Specific Event
These may include performance, festival, ceremony or convention. The rate of GST or HST to be applied is primarily dependent on the location of the event in a province.

Services Rendered in Connection with Criminal, Civil or Administrative Litigation
These services will also be regarded as having taken place in the province in which services are performed. Therefore the rate of GST or HST is dependent on the province in which the services occur.

Repairs, Maintenance, Cleaning, Alternations and Other Services Related to Goods
Despite the rules for tangible personal property, a supplier can receive tangible personal property from another person from a different province for the purpose of cleaning and repairing, etc. Provided that the supplier delivers the property back to the recipient, the rate of GST or HST is based on the location of the recipient.

There will be exceptions to the above rules for personal services, services in relation to real property, and services of a trustee in respect of a trust governed by an RRSP, RRIF, or RESP,  to name a few.

The rules surrounding the HST transition are complex. That’s why it’s important to work with a professional who can help you understand the rules, set up the proper systems, and take advantage of all the tax savings. By working closely with you, an indirect tax specialist can perform a diagnostic analysis, establish priorities for necessary systems, process changes and help you minimize cost and cash-flow impacts.

Stay tuned for MNP’s next article that will address what businesses need to consider. For more information, contact Heather Weber, MNP Indirect Tax Leader at 250.763.8919 or visit the MNP Library for further reading on the HST.