The introduction of the harmonized sales tax (HST) in Ontario and British Columbia not only impacts businesses in those provinces but also has ramifications for companies Alberta.
“While Alberta does not presently have a provincial sales tax, many Alberta companies operate in several provinces, including BC and Ontario,” says Jeff Smith, an associate manager in Tax Services at PwC in Calgary. “Alberta businesses have had to review their activities in and with BC and Ontario to determine the impact of harmonization.”
This would include reviewing contracts – both new and existing – to determine if changes are required to accommodate the transition from provincial sale tax (PST) to HST. It would also involve examining how much HST (charged or paid) your company can recover, as not all of the increase from GST at 5% to HST at 12% in British Columbia or 13% in Ontario is fully recoverable. The introduction of the recaptured input tax credit (RITC) for certain costs such as energy, telecommunications and meals and entertainment has altered the basic premise of the GST/HST for commercial businesses – that the tax should be fully recoverable. For these costs, only the federal GST component of the HST is recoverable.
With the introduction of the HST in two of Canada’s largest provinces, it also means a change in the federal government’s Place of Supply Rules.
Originally, the rules for property and services depended on the supplier’s location and location where the goods were delivered or services provided to determine whether a sale was subject to the provincial component of the HST. However, for services, a significant change arose as a result of harmonization. “There is a shift of the place of supply for GST/HST purposes from the place where the service is performed to the address of the recipient of the service,” he explains. “This is a significant shift for many businesses and may seem counterintuitive.”
For example, an Alberta-based financial organization will be required to charge less tax in Alberta compared to HST provinces as only GST at 5% applies here. However, Alberta companies must review the rules to determine when they are required to charge GST at 5% as opposed to HST at 12% or 13%.
There are also changes to the types of services affected by the HST that companies need to be aware of. Under the PST, only certain services were previously taxable as determined by the respective province.
However, under GST/HST, all services are taxable unless they are specifically listed as non-taxable. Financial services or services to non-residents are generally not subject to GST/HST, as was the case under PST. Nevertheless, many services such as passenger transportation and oil field services that were not previously subject to PST are now subject to the incremental component of the HST.
And companies shipping packages via Canada Post to provinces that have the HST will have to pay the harmonized tax whereas only the GST applies to provinces without the HST.
For Alberta businesses, the introduction of the HST and the change in the Place of Supply Rules will definitely have an impact on their operations.
“Companies that operate in multiple jurisdictions are required to continually make a mental shift to the value-added tax concepts of the GST/HST from a consumption tax framework for PST,” says Smith.