HST - Harmonized Sales Tax
As of July 1, 2010, both British Columbia and Ontario have harmonized their provincial sales tax systems with the GST. This is a significant change that will affect virtually everyone conducting business in these provinces. The following information is provided as a general guideline on how this new tax system will affect transactions involving equipment purchases and leases.
What is the Harmonized Sales Tax (HST) ?
The Harmonized Sales Tax (HST) is a value-added federal sales tax that replaces the previous GST and PST combination. The HST is fundamentally the same as the GST, except that the rate is higher to create additional revenues which will be paid to the province in substitution of their previous PST.
What are the benefits of changing to HST?
Under the previous GST & PST combination, both the provincial and federal governments each had large administrative departments to collect and manage the revenues owing for each tax. The HST eliminates this redundancy and the consolidation will save taxpayers money. Because businesses act as agents for the government in collecting sales taxes, eliminating one of them will reduce the administrative burden on the private sector as well. Having only one sales tax also simplifies the collection of sales tax administration for businesses. Now items and services are either taxable or exempt, whereas previously some items or services may have been exempt under one branch but taxable under another. Rules were not consistent but now there will be only one set of rules related to sales taxes in each province.
Under the previous rules, PST that was added to business purchases increased the cost of those goods and services. Those costs had to be passed along to consumers regardless of whether they were domestic or international customers. Because HST works like the GST and businesses are able to recover sales tax amounts they pay out on purchases for their own consumption, Canadian businesses are expected to have lower operating costs under the HST. Competitive forces will lower the cost for goods and services to consumers, and Canadian businesses will become more competitive internationally.
What are the sales tax rates in each province as of July 1st, 2010?
British Columbia - 12% HST replaces the previous 5% GST and 7% PST
Alberta - 5% GST (No Change)
Saskatchewan - 5% GST and 7% PST (No Change)
Manitoba - 5% GST and 7% PST (No Change)
Ontario - 13% HST replaces the previous 5% GST and 8% PST
Quebec - 5% GST and 7.5% Cascading QST* (No Change)
New Brunswick - 13% HST (No Change)
Nova Scotia - 15% HST (Increases from the previous 13%)
PEI - 5% GST and 10% PST (No Change)
Newfoundland - 13% HST (No Change)
Northwest - 5% GST (No Change)
Nunavut - 5% GST (No Change)
Yukon - 5% GST (No Change)
*In Quebec the sales tax is applied to the total of the selling price plus the GST. The 2009 Quebec budget proposes an increase to 8.5% effective January 1, 2011. The 2010 Quebec budget proposes an increase to 9.5% effective January 1, 2012.
What are the new Place of Supply Rules?
In addition to the implementation of the HST in B.C. and Ontario, the federal government has adopted new guidelines for suppliers to follow when selling goods or services to a customer located in another province. Tax to be paid is now dependent on where the goods and services are to be provided rather than where they are sold. For example, Goods purchased in Alberta but delivered to a customer in BC would be subject to the 12% HST rate rather than Alberta's usual 5% GST rate because the economic benefit of the goods are to be gained in B.C. These new rules are intended to balance competitive disadvantages between suppliers in provinces that have and do not have HST systems.
How does the new HST affect businesses who are purchasing or leasing new equipment after July 1st, 2010?
The transition to the HST system in BC and Ontario means that most new equipment will now cost less in those provinces. Businesses will pay the HST on the price of equipment they purchase, or on the monthly payment amount for equipment they lease. However when they file their GST/HST tax returns, businesses will claim all GST/HST amounts they have paid and deduct that from the tax they have collected. The tax amounts they have paid on their purchases are classified as Input Tax Credits (ITC's). When the company calculates the tax payable on their sales they will deduct the ITC's from what they have collected and remit the difference. If they don't have sufficient sales to have collected more tax than they have paid out on their purchases, then they would file a return claiming a refund of the difference. The net effect is that, unlike the previous PST system, amounts paid for HST will not increase the selling price and capital cost of equipment for businesses.
How will the new HST rules affect invoices to Westport for equipment to be leased by our customers?
Invoices to Westport for equipment to be leased previously included only GST and were PST exempt because the goods were intended for resale. Leasing is a taxable service under PST rules, so Westport is required to collect PST on the monthly payments in those province that charge PST. This procedure will remain in effect for equipment being delivered to those provinces that do not have a Harmonized Sales Tax. Equipment invoices for Westport should now follow the new Place of Supply rules. If the equipment is being delivered to a province that charges HST, then HST would be added to the invoice. If the equipment is being delivered to a lease customer in a province that does not have an HST system, then only GST would be added to the invoice. For equipment being delivered to customers in Quebec, both GST and QST would be charged on the invoice.
What happens with the sales tax on customers' lease payments after July 1st, 2010?
B.C. and Ontario customers who already had leases with Westport prior to July 1st, 2010 will see changes from that point forward. Charges for GST and PST will be replaced by the HST as of July 1st, 2010. Customers who paid PST on their lease payments should see no change in the total amounts due. For those customers previously exempt from PST on their lease contract under an applicable provincial exemption, they will now be required to pay HST. However if they have a valid federal Business Number for GST, they should be able to recover all amounts paid out as HST. They will deduct the amounts paid as Input Tax Credits (ITC's) which are offset against total sales taxes collected when they submit their HST tax returns. If they have paid out more tax than they have collected, they will be eligible to receive a refund from the Canada Revenue Agency for any surplus tax paid out. Net effect is that many customers will see the cost of leasing new equipment decrease because of the ability to deduct the amounts paid for HST as Input Tax Credits.
How does the change to HST affect customers who are Public Sector or Government accounts?
The previous GST exemption for B.C. and Ontario provincial government ministries, departments, and agencies will no longer apply. Effective July 1st, 2010 registered agent businesses selling to B.C. and Ontario governments, ministries, boards, commissions, and Crown corporations must charge and collect the applicable HST on purchases and lease of taxable property and services. These organizations and entities may be eligible for rebates on portions of the HST amounts they have paid but the business providing the goods or services is not responsible for any such rebate, exemption or refund.
Additional information about the HST can be found on the following websites:
Canada Revenue Agency - Harmonized Sales Tax (HST) for Ontario and British Columbia
BC Government - Jobs & The Economy: Facts About the HST for Businesses
BC Government - What's Taxable Under the HST and What's Not?
Ontario Government - Tax Changes You Should Know About
The information above is provided by Westport Leasing Corporation for general discussion purposes only. We take no responsibility for the information being accurate, current or complete and shall have no liability to users of this website for loss or damages purported to have resulted from our provision of this information. To better understand the rules associated with the implementation of the HST in BC and Ontario, we encourage you to contact your accounting or tax professionals for assistance and professional counsel.
Westport Leasing Corporation
11198 - 84th Avenue Box 33026
Delta, B.C. CANADA V4C 2L7
Phone: (604) 681-1260 | Toll Free: 1 (800) 667-0747
Fax: (604) 681-1680 | Toll Free Fax: 1 (800) 667-4426