GST/HST Changes - How Will They Affect Your Business?
One of the campaign promises of the Conservative Platform in the last
Federal Election was a reduction in the GST rate. Although
most Canadians are looking forward to its implementation, as a business
owner there are changes that must be made in your POS and Accounting
systems to accommodate this rate change.
Effective January 1st, 2008 the GST rate will be reduced to 5% and the HST
rate to 13%.
Although there is a lot of documentation released by CRA to effect this
change, here are some of the highlights. If you need assistance in
implementing any of these changes, please
contact us.
What are the new rates of GST and
HST?
When are the new rates of GST and HST
effective?
When do I apply the GST/HST at the new rates?
When is GST/HST payable?
Examples of Effect on Sales of Property
Examples of Effect on Services Provided
Tax Accounting &
Invoicing
What happens if I do not change my cash
registers or computer systems in time to charge the new rates of tax on
or after January 1, 2008?
Will the Government reimburse me the
additional costs I incur in changing my cash registers and computer
system to accommodate the proposed rate change?
What are the new
rates of GST and HST?
The rate of the GST and the federal component of the HST is to be
reduced from 6% to 5%. The provincial component of the HST will remain
at 8%. This means that the rate of HST is to be reduced from 14% to 13%.
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When are the new
rates of GST and HST effective?
The new rates of GST and HST are effective January 1, 2008.
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When do I apply the
GST/HST at the new rates?
Generally, the new rates apply to the supply of taxable goods and
services in the following manner:
If GST/HST becomes payable on or after January 1, 2008 without having
been paid before that day, the 5% GST rate or the 13% HST rate will
apply.
If GST/HST is paid on or after January 1, 2008 without having become
payable before that day, the 5% GST rate, or the 13% HST rate will
apply.
If GST/HST becomes payable or is paid before January 1, 2008, the 6% GST
rate or the 14% HST rate will apply.
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When is GST/HST
payable?
GST/HST on the consideration for a supply is usually payable the
earlier of the day payment is made and the day the supplier issues an
invoice. If there is an undue delay in issuing an invoice, GST/HST
becomes payable when the invoice would have been issued if there had
been no delay. In addition, if either the date of an invoice or the
payment date under a written agreement is earlier than the date the
invoice is issued, GST/HST becomes payable on the earlier date.
For a supply of property by way of lease, licence or similar
arrangement under a written agreement, GST/HST becomes payable the
earlier of the date the payment is made and the date it is required to
be made under the agreement.
If GST/HST is not otherwise payable by the last day of the calendar
month after the calendar month in which any of the following events
takes place, it becomes payable on that day:
- in the case of a sale of tangible personal property, other than
a sale referred to below, the buyer acquires ownership or possession
of the property;
- in the case of a sale of tangible personal property on approval,
consignment, sale-or-return basis or similar terms, the buyer
acquires ownership of the property or re-supplies it to someone
other than the seller; and
- in the case of a supply under a written agreement for
construction, renovation, alteration or repair of real property, or
of a ship or other marine vessel when the work is reasonably
expected to last more than three months, the work is substantially
completed.
The GST/HST will be payable at 5%, or 13% where it becomes payable
under these rules on or after January 1, 2008.
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Sales of property
I invoiced a customer before January 1, 2008 for the sale of
tangible personal property. The customer paid the invoice after January
1, 2008. What rate of tax do I charge on this sale?
Since the GST/HST became payable on the date of the invoice and this
was before January 1, 2008, you would charge the customer GST at the rate
of 6%, or HST at the rate of 14%.
In August 2007, we had a sales promotion where our customers
purchased furniture without having to make any payments until January
2008. What rate of tax should apply to these sales, where our customers
received ownership and possession of this furniture in August 2007, but
will not receive an invoice for payment until January 2008?
If the customers received possession and/or ownership of the
furniture in August 2007, under a written agreement entered into at
that time, the GST/HST is considered payable at the end of September 2007
(see the rule in Question 4 above). Since this date is before January 1,
2008, GST at the rate of 6%, or HST at the rate of 14% applies to the
sale of this furniture.
In November 2007, a consumer buys a refrigerator under a layaway
plan. Under the written agreement, the consumer must make six equal
monthly payments from November 2007 to April 2008 (the payments became due
during each of these months). Possession and ownership of the
refrigerator will be transferred to the consumer after the final payment
is made in April 2008. What rates of tax apply to these payments?
GST at the rate of 6%, or HST at the rate of 14% will apply to the
monthly payments required to be made before January 1, 2008. Payments
required to be made on or after January 1, 2008 will be subject to GST at
the rate of 5%, or HST at the rate of 13%.
We sell property under a conditional sales contract where the
customer receives possession of the property December 1, 2007, but does not
receives ownership of the property until full payment of the purchase
price. The customer agrees to make monthly payments for the property
over a period of time, starting on December 1. How will the reduced rates of
tax affect such a conditional sales contract?
Services and intangibles
I am an accountant issuing an invoice after January 1, 2008 for
services performed before January 1, 2008. What rate of tax do I charge on
these services?
Since the invoice was issued after January 1, 2008, you would charge GST
at the rate of 5%, or HST at the rate of 13%.
I will be invoicing my client after January 1, 2008 for
construction services that will be performed before and after January 1,
2008. What rate of tax will apply on this invoice for my services?
Since you will be issuing the invoice after January 1, 2008, GST at the
rate of 5%, or HST at the rate of 13% will apply to the services billed
on this invoice.
My customer made a partial payment of $100 before January 1,
2008 for services which were performed after January 1, 2008. The total
consideration for the services is $500. The invoice for these services
will be issued after January 1, 2008. What rates of tax apply?
GST at the rate of 6%, or HST at the rate of 14% will apply to the
partial payment of $100 made before January 1, 2008. GST at the rate of
5%,
or HST at the rate of 13%, will apply to the remaining $400 of
consideration for these services invoiced after January 1, 2008.
Before January 1, 2008, we entered into a long-term fixed-price
contract for services, which includes tax. Will the reduced rates of tax
affect the payments we make under this contract?
Any payments made under this contract before January 1, 2008 will
include GST at the rate of 6%, or HST at the rate of 14% if the place of
supply for the services is in a participating province. Payments made
under this contract on or after January 1, 2008 will include GST at the
reduced rate of 5%, or HST at the reduced rate of 13% if the place of
supply for the services is in a participating province.
If I prepay an amount before January 1, 2008 for a
transportation service that will be provided after that date, what rate
of tax applies to the prepayment amount?
A payment made before January 1, 2008 will be taxable at 6%, or 14%,
even if the transportation service will be provided after that date.
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Tax accounting
and invoicing
I use the Quick Method of Accounting to remit the GST/HST.
Will the percentages that I use to remit the GST/HST change?
The Quick Method rates will be changed to reflect the reduced rates
of GST and HST. The new percentages will apply for reporting periods
beginning on or after January 1, 2008. For reporting periods beginning
before January 1, 2008 and ending on or after that date, the existing
percentages will apply for consideration that became due, or that was
paid without having become due, before January 1, 2008 and the new
percentages will apply for all other consideration.
How will I complete my GST/HST return to account for the
reduced amount of GST/HST?
You will continue to report the total GST/HST collected or
collectible in a reporting period, at the rates of 6%, 14%, 5%, or 13%,
on line 103 of the GST/HST return. ITCs for the tax paid or payable will
continue to be reported on line 106.
I am an annual filer for GST/HST reporting and I am required
to make quarterly instalment payments. The amount required to be
remitted as an instalment payment is the lesser of ¼ of the net tax for
the current annual reporting period or ¼ of the net tax for the previous
reporting period.
a) If I calculate my instalment payments based on the new
rates and I underpay, will I be charged penalty and interest?
The provisions regarding penalty and interest will not be amended as
a result of the reduction in the GST/HST rates. If the instalments as
required under the ETA are underpaid, penalty and interest will be
charged on the amount underpaid.
b) Is there any tolerance if I calculate my instalments
incorrectly?
No, unless the reason why the instalments were underpaid falls under
the CRA’s administrative guidelines under fairness for cancelling
penalty and interest. The CRA may waive or cancel interest or penalties
when they result from things that are beyond your control, such as
illness, or from an inability to pay because of financial hardship.
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What happens
if I do not change my cash registers or computer systems in time to
charge the new rates of tax on or after January 1, 2008?
The ETA requires that any amount collected, or charged, as or on
account of tax must be remitted to the Receiver General. For example, if
you collect or charge GST at the rate of 6%, when, in fact, GST at the
rate of 5% should have been collected or charged, you must remit the 6% GST you collected or charged to the Receiver General.
However, if you refund or credit your customer the GST that you
overcharged, and a credit note or debit note is issued containing the
information required under the ETA to substantiate the refund or credit,
you may deduct the amount of the refund or credit given to your customer
from your net tax remittance. This refund or credit must be given within
two years after the day the tax was paid, or charged.
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Will the
Government reimburse me the additional costs I incur in changing my cash
registers and computer system to accommodate the proposed rate change?
No compensation will be provided to businesses for the costs of
implementing the proposed rate change.
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AIS can help simplify the new GST/HST system for you. Please
contact us and we will provide you with
a free consultation on the services we provide.
