Audrey Diamant weighs in on the February 2010 HST Place of Supply Rules and the Current State of Harmonization

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Episode 18: Audrey Diamant weighs in on the February 2010 HST Place of Supply Rules and the Current State of Harmonization

Release date: April 6, 2010
Guest: Audrey Diamant
Running time: 11:46 minutes

With HST implementation in Ontario and BC on July 1, 2010, tax directors and others involved in the harmonization process need to understand the new HST place of supply rules released in February 2010. In this podcast, PwC’s Audrey Diamant discusses changes to the rules which impact the supply of services and intangible property, and the approach to harmonization that companies must take.

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Through interviews with prominent PwC tax subject matter professionals, Tax Tracks is an audio podcast series that is designed to bring succinct commentary on tax technical, policy and administrative issues that provides busy tax directors information they require.


Audrey Diamant weighs in on the February 2010 HST Place of Supply Rules and the Current State of Harmonization

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Gerry Lewandowski: Here with us today is Audrey Diamant, a senior partner with PwC’s sales tax practice based in Toronto.

Audrey has been with PwC for a number of years and is well known in the sales tax community, providing advice and assistance to Canadian and foreign companies coping with the effects of harmonization. Audrey is with us today to discuss the major changes to the HST place of supply rules released in February 2010 and to give us her perspective on the “run up” to harmonization on July 1, 2010.

Thank you for joining us Audrey.

Audrey: Thank you, Gerry.

Gerry: Audrey, before we get into a discussion about the changes to the place of supply rules, let’s discuss where we are in the harmonization process in Ontario and BC. What has come and what is yet to come in the lead up to July 1, 2010?

Audrey: Well Gerry, we’ve have had a number of information notices released by the Ontario and BC governments, as well as Canada Revenue Agency, or CRA. And those notices focused on issues such as transitional rules, point of sale rebates, input tax credit restrictions or recapture and the notices have been very informative, provided a lot of information for taxpayers to digest. Unfortunately, we have not as yet had any significant legislation released to essentially to support and supplement those notices, other than some Ontario Retail Sales Tax legislation discussing how Ontario Retail Sales tax will apply to contracts that straddle the July 1 implementation date. So, we’re still waiting for legislation in all the other keys areas.

My personal hope is that legislation will be released in the next few weeks, as it’s obviously essential in terms of understanding the nuances to all the changes. Regardless of the legislative timetable, I would suggest that at this stage it’s essential that taxpayers review the information that has been released; analyze it in the context of their particular business circumstances, and communicate the necessary changes to others within the organization. Many of our clients have indicated to us that they believe the IT changes alone will take anywhere from three to four months and that includes a period of time to test the changes that have been implemented before go live. So it’s important that all other relevant stakeholders within the organization be working together at this stage to implement the necessary changes. We’re really only looking three more months until implementation, and I think everybody’s of the same mind at this stage we all understand that these changes are much more extensive than simply a rate change.

Gerry: Let’s talk about the February 2010 HST place of supply rule changes. What are the key changes that need to be considered?

Audrey: I think we need to start by defining what the place of supply rules are. These rules are essentially those that determine which provincial jurisdiction has the right to apply tax to a particular transaction, where that transaction may be provided to a customer in more than one provincial jurisdiction. There are place of supply rules currently in the legislation, in the Excise Tax Act, as they were introduced to deal with the Atlantic harmonized provinces back in 1997. However, with the harmonization of Ontario and BC, there was a general sense the existing rules would have to be updated and also revamped, certainly in particular areas. So, on February 25, 2010 the Department of Finance announced major changes to the HST place of supply rules and that was followed by a Technical Information bulletin released by CRA, Bulletin B-103 entitled “Harmonized Sales Tax – Place of supply rules for determining whether a supply is made in a province.”

Now with respect to the specific changes that were announced, first and foremost it’s important to keep in mind that with there will not be any changes in terms of place of supply rules as they relate for real property or tangible property (essentially goods). So where you sell, lease, license those particular items the existing place of supply rules will apply.

There are, however, significant changes proposed to the place of supply rules as they relate to intangible personal property such as intellectual property rights as well as for the supply of services. The bottom line is that we’re moving with respect to those types of supplies from taxing based on the location or jurisdiction of the supplier to essentially the location of the purchaser, the place of consumption.

Gerry: Audrey, what generally constitutes intangible personal property and how have the place of supply rules changed?

Audrey: Intangible personal property or IPP as we refer to it includes a number of different items – a broad category such things as contractual rights, options, intellectual property rights such as patents and trademarks, trade names, and other property such as software, as well as access to a database of information. So it’s a pretty broad category.

In simple terms, when you look at the proposed rules they essentially focus on the location of the customer, as represented by the customer’s home or business address, under circumstances where the IPP is not restricted to use in certain provinces, in other words it can be used any across Canada and where the value of the IPP exceeds $300. Where those conditions are not met, other rules will apply, and they can be fairly complex rules so you need to make sure you read through carefully. And you should also know that there are specific place of supply rules that relate to IPP that relate to tangible goods TPP; IPP that relates to real property, and IPP that relates to services.

Gerry: There also appear to be significant changes to the rules around the supply of services. Can you outline some of these changes?

Audrey: There are rules for the supply of general services that focus, in the first instance, on the location of consumption, essentially determined by the Canadian home or business address of the customer.

If, however, you have more than one home or business address, or the home or business address is not provided then, you are essentially looking at obtaining any address that is most closely connected with the supply. So again, focus on place of consumption.

Where no address can be obtained, for whatever reason, based on the specific nature of the supply, there are default rules that have been provided, which then look to where the services are performed. But certainly that’s not the preferred route. The preferred route is to start with address, home or business, essentially a proxy for place of consumption.

However, there are also special rules for personal services, another category of services that are essentially performed in the presence of the customer such as a haircut. There are also special rules for services in relation to real property or tangible property; services that are location or event specific, and a whole host of rules that apply to services that have some unique properties or modes of delivery that would suggest they would require their own rules and that would include the provision of telecommunication services, repair and maintenance services that cross provincial boundaries, freight transportation, etc.

Gerry: And finally, Audrey, what are your thoughts around what businesses need to be looking at now in both coping with these new place of supply rules and more generally with HST?

Audrey: I think that at this stage, given that we are so close to the implementation date, businesses need to review the rules: transitional rules, place of supply rules, input tax credit restriction or recapture rules. They need to understand how their businesses will be impacted and which specific areas – payables, HR with respect to taxable benefits, expense reports, capital purchases, contracts, etc. These rules do touch a number of different areas within a particular business. The breadth of the charges is extensive, and we often find that our clients, once they start to take a look at the rules and the information that’s been released, they are surprised by how many systems are impacted at the end of the day.

Businesses also need to involve other members of the broader team. We find that there may be one central coordinator, but that coordinator will be working with other members within the organization. The coordinator, however, will maintain central control, if you will, to manage the transition process and ensure that no issues are missed or overlooked. Our clients have told us, very specifically, “Tell me not only what I know, because I want to confirm that my interpretation is correct, but also tell me what I don’t know.” Clearly there’s a concern that issues can be missed or misinterpreted and we want to make sure that everyone has a complete picture.

Businesses then need review the changes that have been implemented. You want, wherever possible, to ensure there is sufficient time to test the changes, to make sure that there are no errors and that you’re in an appropriate position to proceed with harmonization effective July 1.

We’re essentially entering the final few months — not a lot of time left. So at this stage it is hoped that everyone has begun the process in moving to harmonization to ensure a proper and complete transition.

Gerry: Thank you Audrey. For additional information on sales tax harmonization and to access our PwC thought leadership on this topic, please visit

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