October 15, 2009

No. 2009-31

 

 

B.C. and Ontario Release Transitional Rules for Harmonized Sales Tax

Today the governments of British Columbia and Ontario both released rules that will apply during the transition from their current provincial sales taxes (PST) to the new harmonized sales tax (HST). The rules in the B.C. and Ontario releases are substantially the same.

Transitional rules are required to determine which tax — the existing PST or the new HST — will apply to transactions that straddle the July 1, 2010 implementation date for the HST.

This TaxNewsFlash-Canada summarizes the B.C. and Ontario transitional rules for HST.

Background
B.C. and Ontario plan to harmonize their provincial sales taxes (PST) with the federal goods and services tax (GST) to create the HST, effective July 1, 2010.

 

The B.C. HST rate will be 12%, which comprises a 5% federal component and a 7% provincial component. The Ontario HST rate will be 13% (comprising a 5% federal component and an 8% provincial component). The HST will generally apply to the same goods and services as the GST, with some exceptions.

 

For details, see TaxNewsFlash-Canada 2009-13, “Highlights of the 2009 Ontario Budget”, TaxNewsFlash-Canada 2009-20, “Ontario Releases HST Transitional Rules for New Home Builders” and TaxNewsFlash-Canada 2009-23, “B.C. Announces PST-GST Harmonization”.

The transitional rules include the following measures, among others.

HST timeline at a glance

The transitional rules will generally operate based on the following dates:

 

·         Before October 15, 2009 – HST will not apply to consideration that becomes due or is paid on or before October 14, 2009.

 

·         From October 15, 2009 to April 30, 2010 – Certain businesses and public services bodies engaged in GST/HST exempt activities may be required to self-assess the provincial component of the HST on consideration that becomes due or is paid after October 14, 2009 and before May 2010 for goods and services supplied after June 30, 2010.

 

·         May 1, 2010 – HST will generally apply to consideration that becomes due or is paid after April 30, 2010 for property and services supplied after June 30, 2010.

 

·         July 1, 2010 – HST will generally apply to consideration that becomes due or is paid on or after July 1, 2010.

 

·         October 31, 2010 – Any applicable PST that has not become payable by October 31, 2010 will be deemed to be payable on October 31, 2010 to facilitate the wind-down of the PST (this rule appears to be unique to Ontario).

General rules for specific goods and services
B.C. and Ontario’s releases discuss how the transitional rules apply to specific types of goods and services. Selected highlights are as follows.

Goods
The HST will generally apply to the sale of goods if the goods are delivered and ownership of the goods is transferred to the purchaser on or after July 1, 2010.

The releases provide a special rule for subscriptions to newspapers, magazines and some other publications.

Services
The HST will generally apply to services performed on or after July 1, 2010.

Where services straddle July 1, 2010, the supplier of such services would have to apportion part of the payment that would be subject to the HST. However, the HST will generally not apply to a service if all or substantially all (90 percent or more) of the service is performed before July 2010.

The releases provide special rules for funeral and cemetery services, passenger transportation services and freight transportation services.

Leases and licences
The HST will generally apply to a supply of property by way of lease, licence or similar arrangement for the part of the lease interval that occurs on or after July 1, 2010. This rule will apply to leases, licences or similar arrangements for supplies of property such as goods, intangible personal property, and commercial real property.

A person making such supplies for a period that straddles July 1, 2010 would have to apportion part of the payment that would be subject to the HST.  However, HST will not apply to a supply of property by way of lease, licence or similar arrangement if the lease interval begins before July 2010 and ends before July 31, 2010. For example, a car lease payment for the period June 15, 2010 to July 14, 2010 would not be subject to HST.

Intangible personal property
For sales of intangible personal property (such as intellectual property or contractual rights), the HST will generally apply to consideration that becomes due or is paid on or after July 1, 2010.

The releases provide special rules for memberships, lifetime memberships, admissions and passenger transportation passes.

Real property (other than residential housing)
For sales of real property (other than residential housing), the HST will generally apply if both ownership and possession of the property are transferred to the purchaser on or after July 1, 2010.

For a review of Ontario’s previously released transitional rules for residential real property, see TaxNewsFlash-Canada 2009-20, “Ontario Releases HST Transitional Rules for New Home Builders”. B.C. has not yet released transitional rules for new homes.

Residential real property contracts (other than the sale of new homes)
A rebate will be available for PST that contractors have paid on construction materials purchased before July 1, 2010 where those materials are held in inventory at the end of the day on June 30, 2010 and subsequently used in residential property contracts to which HST would apply.

Other transitional rules
The releases also provide specific transitional rules for direct sellers, budget payment arrangements, continuous supplies, combined supplies, and progress payments/holdbacks. The releases also discuss the application of the HST on property and services brought into or imported in the provinces.

Winding down the PST
B.C. and Ontario’s releases also address the winding down process for the PST. These rules should be read in conjunction with the HST transitional rules as noted above. Effective July 1, 2010, the B.C. and Ontario PST will generally cease to apply to:

·         A sale of PST taxable goods where the goods are delivered and ownership of the goods is transferred to the purchaser on or after July 1, 2010.

·         A sale of PST taxable services to the extent the services are performed on or after July 1, 2010. However, PST will apply where all or substantially all of the service is provided before July 2010.

·         A supply of PST taxable goods by way of lease, licence or similar arrangement for the part of the lease or licence interval that is on or after July 1, 2010. However, the PST will apply if the lease interval begins before July 2010 and ends before July 31, 2010.

The releases also provide similar rules for property or services delivered or performed on a continuous basis, goods brought into or imported into B.C. or Ontario, sale of admissions (in Ontario) and the winding down of the B.C. Hotel Room Tax.

Final PST returns
Final B.C. and Ontario PST returns will generally be required to be filed on or before July 23, 2010. Where an amount of PST is collected or becomes payable after June 2010, the vendor will be required to account for that amount in a supplemental PST return to be filed no later than the 23rd day of the following month.

We can help
Your KPMG adviser can help you assess the effect of the B.C. and Ontario HST on your business affairs, and point out ways to take advantage of its benefits or ease its impact. We can also keep you abreast of the progress of these proposals as they make their way into law and help you bring any concerns you may have to the attention of the B.C. and Ontario governments.

 

 

 

Information is current to October 15, 2009. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500.

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