The federal and provincial governments have now passed legislation to implement a Harmonized Sales Tax (“HST”) in Ontario. The HST will combine the federal Goods and Services Tax (“GST”) and the provincial Retail Sales Tax (“RST”) with a general rate of 13%. The new HST regime will officially come into effect on July 1, 2010.
If the HST is an issue for your business then most likely you are already familiar with the concepts and obligations imposed by the GST. One of the most difficult issues surrounding the implementation of the HST, as it was for the GST, is when business are legally obligated to collect HST when the payment for a supply and the delivery of a supply do not occur simultaneously. The government of Ontario has released its general transition rules to set out your requirements regarding the HST in such a scenario. Your obligations will depend on the type of good or service that you are providing.
What follows is a summary of the general transitional rules for the most common transactions for use as a guide in determining the HST obligations of your business. In situations where your business does not fall neatly within the general rules, you should seek the advice of your financial and legal advisers to make sure that you are in compliance with the new rules.
Tangible Personal Property
The general rule is that if you supply goods that are delivered and ownership is transferred to the buyer on or after July 1, 2010 then HST will be applicable. Therefore if you sell a product to a recipient on July 15, 2010 and they pay for it on July 15, 2010, HST will be applicable.
However, there will be cases where the buyer pays for goods prior to July 1, 2010 even though the goods will not be delivered until after July 1, 2010. In such cases, if the consideration is due or paid after May 1, 2010, HST will be applicable. However, if the consideration is due or paid before May 1, 2010, even though delivery will not be made until after July 1, 2010, HST will not be applicable. In the previous example of the goods being delivered on July 15, 2010, if the buyer had paid for the goods in May or June, HST would be applicable. If the buyer had paid for the goods before May, then HST would not have been applicable.
Services
The general rule regarding the supply of services is that if you supply a service on or after July 1, 2010 then HST is applicable. Therefore, HST will not apply to services performed prior to July 1, 2010. This general rule would not apply to the provision of services if substantially all of the service is performed prior to July 1, 2010.
With respect to payments for services made after July 1, 2010, HST will be applicable to the portion of the payment for services rendered after July 1, 2010. If a payment is made before July 1, 2010, but after May 1, 2010, for services rendered after July 1, 2010, HST will be applicable. However, payments made before May 1, 2010 will not attract HST, even if the services will not be performed until after July 1, 2010.
In addition, there are some exceptions to these general transition rules for services provided in connection with Prepaid Funeral and Cemetery Services, Passenger Transportation Services and Freight Transportation Services.
Leases and Licences
The general rule is that property supplied by way of lease or licence will attract HST for the portion of the lease or licence that occurs after July 1, 2010. HST would be applicable to lease payments for such time periods if the payment is due and payable after July 1, 2010.
If a lease or licence payment for a period occurring after July 1, 2010, but the payment for such period is paid or due between May 1, 2010 and June 30, 2010, HST will still be applicable. For payments made prior to May 1, 2010, HST will generally not be applicable, even if the payments are made for a portion of the lease or licence that occurs after July 1, 2010 (however certain businesses may be required to self-assess in these circumstances).
Intangible Personal Property
Intangible personal property includes supplies of intellectual property or contractual rights. The general rule is that a supply of intangible personal property will attract HST if the consideration for such property is due or paid after July 1, 2010. In addition to the general rule there are specific rules for intangible personal property such as memberships, admissions and passenger transportation passes.
Commercial Real Property
The Ontario government has released detailed transitional rules for residential real property in addition to the general transitional rules. With respect to commercial real property, the general rule is that HST will apply to such a sale if both ownership and possession pass to the purchaser on or after July 1, 2010. Therefore, if a contract for sale of commercial property is entered into between now and July 1, 2010, HST will be applicable if ownership and possession are transferred after July 1, 2010 (even if the purchase price is paid prior to July 1).
The End of the RST
With the application of the HST to the situations described above, RST will cease to apply. Final RST returns must be filed by July 23, 2010. If there is an amount relating to RST collected after such time, a supplemental RST return will have to be filed no later than November 23, 2010.
The new HST regime will be very familiar to most businesses already dealing with the GST. Many businesses will fit nicely into to the general rules described above. However you should be working closely with your financial and legal advisers to ensure that your business is ready to fulfill its new HST obligations.
Brent Timmons is an Associate with BrazeauSeller.LLP. Brent practices in the areas of Corporate & Commercial Law, Family Business and Technology Law. Brent can be reached at 613-237-4000 ext. 274 or [email protected].