Small business and application of the HST

The Harmonized Sales Tax (HST) promises to have wide-ranging effects on small busi­nesses.

The good News is that busi­nesses will now have to file only one tax return, cutting down on their paperwork. Costs will go down for many small enterprises, since the pro­vincial sales tax they paid was not recoverable, while the Goods and Services Tax (GST) and the new HST is recoverable in most cases.

On the other hand, some small businesses with non-business customers may face significant resistance to this new tax.

No matter what kind of small business people operate, it is important to understand how the HST works. Here is some important information:

Register your business for the HST – “You are required to register for the GST/HST if your taxable sales exceeded $30,000 in the previous year,” said chartered accountant Mar­vin Martenfeld, a partner with Meyers Norris Penny LLP in Toronto. “If you are required to register, you are also obligated to collect GST and HST on taxable goods or services. You may claim any GST and HST amount back in a GST and HST return, provided you are regis­tered and you use the purchase in your taxable sales. Even if you are not required to register, you should consider doing so, because you can recover the 13-per-cent HST paid on your purchases used in taxable revenues.”

Know what GST and HST rate applies to your sales – “There are three categories: GST and HST taxable sales at the five-per-cent rate (GST) or 13-per-cent rate (HST); zero-rated sales; and exempt sales with no tax being charged,” explained chartered accountant Lloyd Lindsay, of Mississauga. “Businesses with GST and HST taxable sales or zero-rated sales can deduct all the GST or HST that they pay on their purchases from the taxes they collect.

“Exempt sales bear no tax, but those businesses won’t be able to claim the increased HST tax charged on their busi­ness costs.”

Exempt sales include sales made by most non-profit orga­nizations, charities, medical, and dental practitioners and financial service providers.

Double-check your systems – “Conduct periodic checks of your invoicing systems to en­sure that they are all working well and charging the correct rate of tax,” advised Mar­tenfeld. “This includes sales re­ceipts, invoices and contracts.”

Take advantage of available assistance – “Ontario has is­sued industry-specific bulletins to help businesses through the transition to the HST and beyond,” said Lindsay. “A good place to start is the Ontario Ministry of Revenue website at­on.­ca.”

A tax specialist, such as a chartered accountant is also a valuable source of information. “The rules are complicated,” said Martenfeld. “New infor­ma­tion and updates are fre­quently released.  Your CA can help make sure you stay on top of how the HST affects your small business.”

from the Institute of Char­t­ered Accountants of Ontario