Sales Tax Harmonization

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Manage any compliance challenges when accommodating the new value added tax system

2011-09-30: QST Harmonization Announcement

Quebec and the federal government announced today the signing of an agreement regarding sales tax harmonization. Under this agreement, Quebec will obtain financial compensation of $2.2 billion from the federal government for the harmonization of the QST with the GST. Both governments will make their best efforts to enter into a Canada-Quebec Comprehensive Integrated Tax Coordination Agreement by April 1, 2012. The changes that Quebec has agreed to make to the QST should be implemented on January 1, 2013. The most important changes to the QST system arising from the agreement on harmonization with the GST system are as follows:

  • The QST will apply on the selling price excluding GST 
  • All the QST exemptions will be maintained 
  • Harmonization of the QST rules with the GST for financial services and financial institutions, and elimination of the Quebec compensatory tax on financial institutions. 
  • Phase out of the restrictions on input tax refunds for large businesses during a phase-out period of not more than three years starting in 2018. 
  • Revenue Quebec will continue to administer the GST/HST/QST in Quebec, except for selected listed financial institutions and specified financial institutions for which the GST/HST/QST will be administered by the Canada Revenue Agency

As a result of the 2010 Harmonized Sales Tax (HST) implementation in Ontario and British Columbia, affected organizations continue to have work to do to ensure they have properly accounted for these revised tax systems. Businesses that revamped their accounting systems and compliance and reporting procedures must now ensure these changes result in appropriate tax collection and remittance. They may also need to replace interim fixes and workarounds with permanent cost-effective solutions.

Layer onto these changes the subsequent elimination of the British Columbia HST and the reinstatement of Provincial Sales Tax (PST) and Goods and Services Tax (GST) on April 1, 2013 and there are many changes to manage. The transitional rules for the return to British Columbia PST, when released, may impact buying decisions as companies that fully recover HST on business purchases may accelerate capital and other acquisitions pre-April 1, 2013, while those that do not enjoy full HST recovery may choose to defer purchases that qualify for exemption under the PST.

Quebec’s announced harmonization of its Quebec Sales Tax rules with the GST to take place on January 1, 2013 will result in further changes to systems and reporting.

This is an unusual time of change and activity in how the various provinces are structuring their indirect tax regimes resulting in necessary vigilance by the taxpayer to ensure compliance.

How PwC can help

PwC Canada's Indirect Tax team has significant experience in addressing these tax reform changes for our clients. We can assist with post-HST implementation reviews by evaluating processes, calculations and compliance in conjunction with applicable transitional rules to gauge correct collection of tax, claims for input tax credits, and tax adjustments.

Our team can also assist companies in preparing for the transition in British Columbia and Quebec.

For more information on the HST, contact a member of our Indirect Tax team or read the HST-related publications below.

Tax facts and figures: Canada 2013
Our Tax facts and figures: Canada 2013 convenient reference guide includes Canadian individual and corporate tax rates and deadlines, summaries of recent tax cases and a wide range of other valuable tax information.

Tax memo: Sales tax changes — The years ahead (Memo No. 2012-24)
Four provinces – British Columbia, Nova Scotia, Quebec and Prince Edward Island – will be modifying their sales tax regimes or rates in coming years.

Taxation and tax incentives in Ontario 2011
This reference tool is designed to help organizations doing business in Ontario and provides an overview of rules, including key Ontario corporate and personal tax rates.

Tax memo: Eliminating the HST in British Columbia — Canada’s Department of Finance proposes transitional rules (Memo No.: 2012-06)
This tax memo discusses the details of transitional rules relating to the elimination of the HST in British Columbia.

Tax memo: Returning to B.C.’s Provincial Sales Tax — Transitional rules for new housing (Memo No.: 2012-05)
This Tax memo outlines transitional rules introduced by British Colombia to mitigate potential double taxation on new housing, as a result of the return to the 7% Provincial Sales Tax (PST).

Tax memo: B.C. votes to extinguish HST
BC votes to eliminate the HST and reinstate the PST. Learn what this means for your business.

Tax Controversy and Dispute Resolution: Tax memo -- Auditor General Gives the CRA’s Commitment to Service a Positive Review
Get details on the CRA’s new process for handling service-related complaints from taxpayers in this special Tax memo issue.

HST— July 2010
This brochure discusses what Canadian retailers need to know about the new harmonized sales tax for British Columbia and Ontario. It includes background, transitional rules and actions required of retailers.

Tax Harmonization 2010 Webcast
Get an idea of the HST’s impact on organizations doing business in Ontario and British Columbia from this PwC webcast.