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GWA Business Solutions. HST and Your Business 2009 Ontario Harmonization Update Are your clients ready for the OHST?. Outline. Background to the Ontario HST Planning for the OHST Transition to the OHST Sale of TPP Services Leases Memberships Real Property

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gwa business solutions

GWA Business Solutions

HST and Your Business

2009 Ontario Harmonization UpdateAre your clients ready for the OHST?

outline
Outline

Background to the Ontario HST

Planning for the OHST

Transition to the OHST

Sale of TPP

Services

Leases

Memberships

Real Property

OHST and the Residential Housing Industry

MUSH Sector and the OHST

background to the ohst
Background to the OHST
  • Setting the Landscape
  • Limited guidance issued so far
    • No legislation has been issued
    • Relying on budget comments and some pronouncements
    • Presentation is based on speculation
background to the ohst1
Background to the OHST
  • Overview
    • Effective July 1, 2010
    • Rate of 8% for the OHST and 5% for the GST
    • Parallels the GST
    • HST is a “value-added tax” rather than the Ontario Retail Sales Tax (ORST) which is a consumption tax
    • Elimination of the Ontario Retail Sales Tax
background to the ohst2
Background to the OHST
  • Overview
    • Part of Ontario’s Comprehensive Tax Package
    • Simultaneous decrease in rate of income tax for individuals, small businesses and corporations
    • Intended to attract investment and employment to Ontario
background to the ohst3
Background to the OHST
  • Benefits of Replacing ORST with OHST
  • “Simpler” compliance
      • Deal with only one government tax authority
      • One potential compliance audit
    • ORST is subject to interpretation
      • Results in many judgment calls made by auditors
      • Limited legislative guidance
    • Will eliminate embedded ORST previously absorbed by persons engaged exclusively in commercial activities as OHST recoverable as ITC’s
slide7

Background to the OHST

  • Costs of Replacing ORST with OHST
    • Additional tax to consumers
    • Expenditures not currently subject to ORST:
      • i.e. professional fees, commercial rents, real property purchases
    • Additional tax on entities not exclusively engaged in commercial activities (i.e. Exempt supplies)
      • Health Care services
      • Financial institutions
    • Cash flow impact
      • Like the GST, OHST will be remitted when billed, not when collected
      • Purchases taxed at 13%
background to the ohst4
Background to the OHST
  • Accounting Issues
    • Systems implementation to provide for OHST and elimination of Ontario RST
    • Tracking ITC’s is important again
      • Tracking potential restricted ITCs
      • On which expenses can you claim an ITC? (i.e. municipalities, charities, etc.)
      • How to implement?
      • Required system changes
background to the ohst5
Background to the OHST
  • ITC Restrictions
  • Apply to:
    • Financial institutions
    • “Large Businesses”
      • TAXABLE sales over $10,000,000 annually
      • On an associated basis
    • Recovery of ITC’s on OHST paid restricted as follows:
      • First 5 years
      • After first 5 years, phased in over next 3 years
background to the ohst6
Background to the OHST
  • ITC Restrictions on OHST Paid
  • Restricted purchases:
    • Energy (except for energy used for farming or for production of goods for sale)
    • Telecommunications services other than internet access or toll free numbers
    • Road vehicles less than 3000 kilograms and related fuel, parts and certain services
    • Food, beverages and entertainment
background to the ohst7
Background to the OHST
  • Point of Sale Rebates
    • Tax Relief from the OHST portion for:
      • Books (including audio books)
      • Children’s clothing and footwear
      • Car seats and car booster seats
      • Diapers
      • Feminine hygiene products
      • Meals under $4.00
planning for the ohst
Planning for the OHST

Planning Opportunities

Accelerate purchases before July 1, 2010 with no ORST but Ontario HST

Most services (subject to transitional rules)

Where full recovery of OHST is not available

Delay purchases that have ORST charged

ORST is an additional unrecoverable cost

HST may be eligible for a rebate or ITC

Lease now; buy later? (contract structuring)

planning for the ohst1
Planning for the OHST

OHST Planning Opportunities

Contracts extending beyond July 1, 2010

Consider OHST implications

Prepayment of taxable items

example: Golf fees for 2010

Important when no full recovery of OHST

Works for consumers

planning for the ohst2
Planning for the OHST

OHST Planning Opportunities

May voluntarily register for GST if small supplier

Input tax credits may become available in respect of the taxable supplies

OHST will be a 13% cost

planning for the ohst3
Planning for the OHST

OHST Risk Areas

13% risk if GST/HST is not collected

Entities that don’t usually collect GST

Charities

Non-profits

Doctors

Financial institutions

Self employed

planning for the ohst4
Planning for the OHST
  • HST Impact Analysis
  • HST Implementation Strategy
  • Staff Training
  • Post-Implementation Review
transition to the ohst
Transition to the OHST

Introduction

Dealing with transactions that straddle the July 1, 2010 implementation date

When do we charge ORST?

When do we charge the OHST?

Ontario Information Notice issued on October 14, 2009 provides general guidance

sale of tpp
Sale of TPP

Rules

When is GST Payable?

Earlier of when the consideration for the supply:

Becomes due; or

Is paid without becoming due.

Subject to special over-ride rules

Difference between a “deposit” and the payment of the consideration

sale of tpp1
Sale of TPP

OHST General Rule – Starting on May 1, 2010

For transactions that straddle the July 1, 2010 date

Charge OHST starting on May 1, 2010

Some exceptions depending on nature of supply require earlier OHST billing

See lifetime memberships and construction progress billings

sale of tpp2
Sale of TPP
  • Example 1
    • Sale of TV occurs in April 2010
    • Purchased for $25,000 for his personal use
    • Pays for the TV in full at the time of purchase
    • TV gets delivered and ownership transfers on July 15, 2010
sale of tpp3
Sale of TPP
  • Result
    • TV was paid in full April 2010 (before May 1, 2010)
    • GST is triggered in April 2010
      • Earlier of when consideration becomes due, or
      • when paid without becoming due
    • Therefore, no requirement to collect OHST
sale of tpp4
Sale of TPP
  • General Rule for ORST
    • ORST will generally cease to apply
      • to a sale of goods where the goods are delivered and ownership of goods are transferred after July 1, 2010
sale of tpp5
Sale of TPP

ORST Overriding Rules

ORST continues to apply on pre October 15, 2009 transactions

where consideration becomes due or is paid on or before October 14, 2009

Example: sale of tickets in September 2009 for an event that takes place in July 2010

sale of tpp6
Sale of TPP

ORST Overriding Rules

After October 14, 2009 and before May 2010

Where consideration becomes due or is paid within these dates

ORST should be collected on July 1, 2010 straddle transactions

No ORST required to be collected if:

Self assessment of OHST by purchaser, or

Exclusively in commercial activities

sale of tpp7
Sale of TPP

Self Assessment of the OHST

Transactions after October 14, 2009 and before May 2010

Who is required to self assess Ontario component of OHST?

Excludes consumers

Businesses not exclusively in commercial activities

Businesses subject to ITC restrictions

Using simplified procedures (i.e. charities, quick method)

Selected listed financial institutions

Remit self assessed OHST earlier of the GST return for July 1,2010 transactions or on prescribed form before November 1, 2010.

sale of tpp8
Sale of TPP
  • ORST Overriding Rules
  • Practical problem
    • How does the vendor know if purchaser is required to self assess or is exclusively in a commercial activity?
  • Opportunity
    • ORST paid in error by the purchaser
      • On July 1, 2010 straddle transactions where ORST collected
sale of tpp9
Sale of TPP

Example 2

Registered charity buys the TV in April 2010

Delivered in July 2010

Ownership transfers in July 2010

sale of tpp10
Sale of TPP

Result

Self assess the Ontario component of OHST on the purchase of the TV, earlier of

GST return that includes July 1, 2010, or

before November 2010 on prescribed form

Claim 50% rebate of GST; Claim 82% rebate of provincial component of OHST

If ORST is paid, refund opportunity

sale of services
Sale of Services
  • General Rules
    • Starting May 1, 2010 need to collect OHST on transactions that straddle July 1, 2010
    • OHST applies to services provided after July 1, 2010
sale of services1
Sale of Services

Example

Lawn maintenance package purchased on April 15, 2010

Service covers period from June 1, 2010, to December 31, 2010

Does OHST need to be collected?

sale of services2
Sale of Services

Result

No OHST is collected since the service is paid for before May 1, 2010

However, self assessment required on cost of maintenance package that relates to post July 1, 2010 period

sale of services3
Sale of Services

Rules

No OHST to be charged on:

A supply of a service that is 90% performed before July 1, 2010

Billings will require adjustments to correctly apply tax to pre and post OHST services

sale of services4
Sale of Services

Example

Issues an invoice on August 15, 2010, for $1,000

Maintenance period from June 1, 2010 to December 31, 2010

Does OHST need to be collected?

sale of services5
Sale of Services

Result

Consideration becomes due on August 15, 2010

Date of invoice

OHST and GST charged for period July 1, 2010 to December 31, 2010 ($857.14 x 13% = $25.71)

GST charged for the month of June, 2010 ($142.86 x 5% = $7.14)

$32.85 remitted in return covering August 15, 2010

sale of leases
Sale of Leases
  • Rules
    • OHST would generally apply to a supply of property by way of lease, licence or similar arrangement for the part of a lease interval that occurs on or after July 1, 2010.
    • The OHST would not, however, 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.
sale of leases1
Sale of Leases

Example

2008 lease

5 years

“Lease interval” May 1, 2010 to October 31, 2010

Payment due March 31, 2010

Recipient uses the Quick Method

Does OHST apply? Does ORST apply?

sale of leases2
Sale of Leases

Result

Each lease payment is a separate supply

No “grandfathered” leases

No OHST to be collected since payment due before May 1, 2010. GST would be due on March invoice

Purchaser needs to self assess 8% portion of OHST on post July 1, 2010 period since on the Quick Method

ORST applies for the pre July 1, 2010 period

If ORST is paid on entire lease interval, eligible for rebate for postJuly 1, 2010 period

sale of memberships
Sale of Memberships
  • Rules
    • A supply of a membership in a club, organization or association deemed to be a supply of a service for purposes of the transitional rules.
    • OHST is payable with respect to the period after July 1, 2010
sale of memberships1
Sale of Memberships

Example

Golf Membership for 2010

Membership to be billed in 3 equal installments

$1,000 each on January 1, May 1 and September 1

Does the OHST apply?

sale of memberships2
Sale of Memberships

Result

Considered to be a service

OHST to be collected on fees that become due or paid after April 2010 but relate to post July 1, 2010 period (May and September)

First payment not subject to OHST

No self assessment on fees required since OHST paid on post July 1, 2010 period

OHST to be collected on ½ of the May invoice (July and August portion)

sale of memberships3
Sale of Memberships
  • Rules: Lifetime Memberships
    • After October 14, 2009 and before July 2010
      • The first 25% of the membership is not subject to OHST
      • OHST collected on the remainder
sale of memberships4
Sale of Memberships

Example: Lifetime Memberships

$40,000 total cost of membership

$20,000 due on March 1, 2010

$20,000 due on September 1, 2010

How much GST/HST is due? When is the tax due?

sale of memberships5
Sale of Memberships

Result: Lifetime Memberships

Payment due after October 14, 2009, and before July 1, 2010

March 1, 2010 billing is 50% of lifetime membership fee

Must collect OHST on portion of fee exceeding 25% of total lifetime membership or $10,000 of March 1, 2010 billing

sale of memberships6
Sale of Memberships

Result: Lifetime Memberships

Must collect GST on first 25% of membership fee ($10,000) of March 1, 2010 billing

GST = 5% of $20,000 ($1,000) must be reported in March return

Ontario component of OHST must be collected on amount in excess of 25% of membership fee ($10,000 x .08 = $800), and must be reported in July return

OHST must be collected on September 1, 2010 billing($20,000 x .13% = $2,600) and reported in September return.

real property
Real Property

Rules

Determining when GST is payable

GST is generally payable when consideration is paid or becomes due

Override rule for real property construction services*

GST is deemed to become due on any consideration that has not been paid or invoiced on the last day of the month following the month in which substantial completion is reached.

* Applies to construction, renovation, alteration or repair of real property

real property1
Real Property

Rules: OHST and Real Property contracts

OHST applies if the payment is attributable to property delivered or services performed after July 1, 2010

OHST applies to amounts due or paid without becoming due afterOctober 14, 2009 and before July 1, 2010

Exception to the May 1, 2010 rule

i.e. OHST applies to April 2010 progress billing if attributable to property delivered or services performed after July 1, 2010

If OHST applies to pre July 1, 2010 billing it is reported on GST/HST return that includes July 1, 2010 and before November 2010

Does not apply to sale of residential property

real property2
Real Property

Example

Building is substantially completed on May 2, 2010

Contract is for $1,500,000 with the following billings:

$500,000 due on March 31, 2010

$500,000 due on May 15, 2010

$500,000 less $150,000 holdback is due on August 15, 2010

$150,000 holdback is due on September 1, 2010

First two payments attributable to property and services delivered prior to July 1, 2010

70% of last two payments attributable to post July 1, 2010

real property3
Real Property

Result

Substantial completion occurs on May 2, 2010

GST owing on the $350,000 payment ($17,500) due August 15, 2010 needs to be remitted by June 30, 2010

GST does not apply to the $150,000 holdback

GST on holdback is due September 15, 2010

real property4
Real Property

Result

March 31, 2010 and May 15, 2010 billings

100% attributable to property delivered and services performed beforeJuly 1, 2010

No OHST would be collected on these payments, only GST

real property5
Real Property

Result

August 15, 2010 Payment of $350,000

$150,000 related to holdback not due until Sept 15, 2010

70% of $350,000 attributable to property delivered and services performed after July 1, 2010

OHST of 8% of 70% times $350,000 or $19,600

For OHST, substantial completion is deemed to be June 1, 2010 (not May 2, 2010)

OHST due July 31, 2010 because of the substantial completion rule

real property6
Real Property

Result

$150,000 Holdback on September 15, 2010

70% attributable to property delivered or services rendered after July 1, 2010

OHST of 8% of 70% times $150,000 or $8,400

Reported on September 2010 GST Return

GST of $7,500 is also reported on September return

residential housing
Residential Housing
  • General Rules
    • Agreements prior to June 18, 2009: “Grandparented Transactions”
      • No OHST is collected
      • Builder has taxpayer transitional adjustment based on % completion as of June 30, 2010
    • Post June 18, 2009 Agreements
      • OHST applies
      • Is entitled to a transitional ORST rebate
residential housing1
Residential Housing

Rules: Grandparented Purchases

Impact on Builder

No OHST to be collected on the sale

Need to pay a transitional tax on homes not 90% complete by July 1, 2010

Approximates the ORST savings to the builder on post July 1, 2010 expenditures

Transitional tax applies to sales of a condominium complex or residential condominium units regardless of % of completion of units

residential housing2
Residential Housing

Rules: Grandparented Purchases

Impact on Builder

Transitional tax adjustment (TRA) is based on the total purchase price of the home

TRA is based on the percentage completed as of July 1, 2010

For example, if the home is less than 10% complete, the TRA is equal to 2% multiplied by the total purchase price

TRA % on declining degree of completion

1.5% if more than 10% but less than 25%

1.0% if equal to or more than 25% but less than 50%

.5% if equal to or more than 50% but less than 75%

.2% if equal to or more than 75% but less than 90%

0% if equal to or more than 90% complete

residential housing3
Residential Housing

Example: Grandparented purchase

Agreement date is June 1, 2009

Ownership and possession to be transferred in August 2010

$300,000 home

Does OHST apply?

residential housing4
Residential Housing

Result

Agreement on or before June 18, 2009

Would be eligible for the 36% rebate of the GST paid provided all conditions are met

No housing rebate for the OHST since no OHST was paid on the purchase

residential housing5
Residential Housing

Rules: Post June 18, 2009 Agreements

Eligible for new housing rebates (GST and Ontario component of OHST)

Maximum rebate for Ontario component is $24,000 on a $400,000 home

Unlike the GST rebate, not phased out for homes costing more than $450,000

Calculated as 75% of the Ontario component of the OHST paid

residential housing6
Residential Housing

Rules: Agreements subject to OHST

Transitional ORST Rebate Calculation

Based on the percentage completed on July 1, 2010

Paid to purchaser

Two methods to determine ORST content:

ORST content based prescribed rate per square metre of floor space

ORST content based on 2% of selling price

residential housing7
Residential Housing

Rules: Agreements subject to OHST

Transitional ORST Rebate Calculation

Based on the estimated ORST content

Increasing scale based on percent complete as of July 1, 2010

0% if less than 10% complete

25% if equal to or more than 10% but less than 25%

50% if equal to or more than 25% but less than 50%

75% if equal to or more than 50% but less than 75%

90% if equal to or more than 75% but less than 90%

100% if equal to or more than 90% complete

residential housing8
Residential Housing

Rules: Post June 18, 2009 Agreement

Transitional ORST Rebate Timeframes

If using the floor space method rebate must be filed after June, 2010 and before July 1, 2014.

If using the selling price method rebate cannot be filed earlier than when OHST payable or when TRA would be considered collected and beforeJuly 1, 2014.

residential housing9
Residential Housing

Rules: Agreements subject to OHST

Transitional ORST Rebate Calculation

For new condo’s, apartments and residential housing units

Rebate available to the builder rather than the purchaser

Rebate would be available where transitional tax adjustment or single sales tax would apply

Rebate would also be available for qualifying new additions to traditional apartment buildings

residential housing10
Residential Housing

Example 2: Post June 18, 2009 Agreements

Agreement entered into on October 15, 2009

Ownership and possession to transfer after July 1, 2010

$300,000 purchase price

Does OHST apply?

residential housing11
Residential Housing
  • Result
    • Written agreement of purchase and sale entered into after June 18, 2009, and both ownership and possession of the house transfer to the purchaser after June, 2010
    • OHST and GST at 13% would apply to the sale
    • If construction of house at least 10% complete on July 1, 2010, purchaser entitled to claim new housing rebate
    • Purchaser may also be entitled to claim Ontario new housing rebate in respect of the Ontario part of the OHST
residential housing12
Residential Housing

Result

Cost of home is $300,000

OHST/GST of $39,000 payable on home ($24,000 Ontario component; $15,000 GST)

New housing rebate is 75% of the Ontario OHST or $18,000

Net provincial tax is $6,000

Equal to estimated 2% of the ORST embedded in a new home before phase out

Amounts greater than $400,000 will have 6% more tax (i.e. 8% OHST – 2% ORST previously embedded)

residential housing13
Residential Housing

Result

Since sale is subject to OHST, no ORST should be embedded in the builder’s cost

Purchaser may be eligible for an ORST refund based on the estimated ORST content

Percentage of completion of home will determine the amount, if any, of the rebate

Rebate can be claimed through the builder or from CRA with builder certification of the percent complete

mush sector ohst
MUSH Sector OHST
  • Municipalities, Universities, Colleges, School Boards, Hospitals, Charities, Qualifying Non-Profit Organizations
  • Benefits / potential costs?
  • Each entity should review carefully implications of OHST in upcoming budgets
mush sector ohst1
MUSH Sector OHST
  • Public service bodies presently recover GST as a percentage of GST paid
  • Public service bodies will also be able to claim rebates on provincial OHST portion
  • Entities in the MUSH sector will need to track federal portion and provincial portion separately to calculate rebates
mush sector ohst2
MUSH Sector OHST

Sector Rebate Table