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Prepare for harmonized sales tax (HST) rate changes

HST rates are set to increase in three provinces. Businesses based in, or doing business with these provinces should prepare for the changes:

  1. Effective July 1, 2016, the HST rate in New Brunswick will increase from 13% to 15%. This implements proposals from the province’s February 2, 2016 budget.
  2. Effective July 1, 2016, Newfoundland and Labrador will increase its HST rate from 13% to 15%.
  3. There is a budget proposal to increase Prince Edward Island’s HST rate from 14% to 15%, effective October 1, 2016.

To prepare for the rate changes:

1. Plan for, and do not underestimate, the time it will take to update accounting and other systems and processes to handle the new rates, as well as the rates applicable during the transition periods. Billing systems and processes should be updated to properly account for HST on taxable sales. Additionally, system and process changes will be necessary to properly reflect the HST applicable to employee taxable benefits and expense claims, as well as other accounts payable and expenses.

2. Understand the transitional rules in place for determining the applicable HST rate for taxable supplies that straddle the effective dates. As the rate changes are soon to be effective in Newfoundland and Labrador and in New Brunswick, transitional rules are already available for these provinces. (See transitional rules for Newfoundland and Labrador at fin.gov.nl.ca/fin/tax_programs_incentives/personal/transitional_rules.html and for New Brunswick at www2.gnb.ca/content/dam/gnb/Departments/fin/pdf/Taxes-Impots/TransitionalRulesNBHST.pdf.

Generally, the new HST rates are applicable to:

  • Payments, whether due or not, made on or after July 1, 2016;
  • Amounts that are due but unpaid on or after July 1, 2016.

However, there are special rules to determine the appropriate rates for some transactions, including certain real property transactions. There are also rules for determining whether consideration for a taxable supply has become due or not.

3. Prepare for increased costs. The rate changes can have a significant impact on large purchases, businesses experiencing cash flow challenges, or businesses that cannot recover any or all of their input tax credits. One solution, albeit short-term, is to expedite significant purchases so that they are completed before the increased rates become effective. Businesses should also consider the future effect of the rate changes on contracts that are currently being negotiated.

With Nova Scotia’s HST rate already at 15%, and the budget proposal to increase Prince Edward Island’s HST rate from 14% to 15% effective October 1, 2016, all participating provinces except for Ontario (with an HST rate of 13%) will have an HST rate of 15%. Participating provinces are those that charge HST; New Brunswick, Nova Scotia, Newfoundland and Labrador, Ontario and Prince Edward Island.

Apolone Gentles, JD, CPA,CGA, FCCA, Bsc (Hons)

Apolone Gentles is a CPA,CGA and Ontario lawyer and editor with over 20 years of business experience. She has held senior leadership roles in non-profit organizations, leading finance, human resources, information technology and facilities teams. She has also held senior roles in audit and assurance services at a “Big Four” audit firm. Apolone has also lectured in Auditing, Economics and Business at post-secondary schools.
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