Note: The rules and law may have changed since this article was first published. It is provided for archival purposes but you should consult with your lawyer for the current state of the law
Harmonized Sales Tax, or HST, combines Provincial Sales Tax (PST) and Goods and Services Tax (GST).On April 1, 1997 HST was introduced in New Brunswick, Nova Scotia and Newfoundland, and on July 1, 2010 Ontario and British Columbia adopted it. Our provincial government is saying there is no HST in our future, but many, if not most, Saskatchewan businesses will still have to account for HST on some transactions.
HST merges GST and a province’s PST into one, which is administered by Canada Revenue Agency. This creates one return to file with CRA rather than separate GST and PST forms, and also eliminates the need for businesses to navigate two separate bodies of law. This elimination of dual systems, and the fact that input tax credits apply to more products, makes HST popular with many businesses.
There is no need to register separately for HST if you are currently registered for GST, and the reporting periods for HST are identical to GST. Input tax credits are available for both GST and HST, although some temporary restrictions exist for large businesses on the provincial component in British Columbia and Ontario.
Provinces which are subject to HST legislation are referred to as participating provinces, and provinces operating under the old GST/PST rules are referred to as non-participating provinces. Ontario, New Brunswick and Nova Scotia have adopted a 13% HST rate, B.C.’s is set at 12%, and Newfoundland is pegged at 15%.
So why do Saskatchewan businesses need to be concerned with HST? If your purchases and sales are to residents entirely within this province, you don’t. But if you have customers in participating provinces, you might have to charge HST. We are somewhat used to applying PST on some sales to non-residents. Unfortunately, the HST rules do not mirror the supply rules for our PST. Actually, they are much broader.
For goods and services provided after June 30, 2010, the determination of whether HST is charged is based upon the place of supply rules released by CRA. For supplies of real property or certain services related to real property, the supply is deemed to have been made in the province where the real property is located regardless of the province where the recipient is located.
That’s straightforward enough. For supplies of certain services, however, the emphasis is put on the physical address of the recipient. For example, 12% HST rather than 5% PST and 5% GST would be charged where the recipient of a service is located in British Columbia and the supplier of the service is located in Saskatchewan. There are some exceptions to this rule, but that is the norm. Certain specific services have their own place of supply rules, and each industry needs to know them if supplies of services are being made in participating provinces. If a physical address of the recipient of a service is known, this is usually used to determine where the supply was made. CRA also has specific rules where multiple addresses are obtained by a supplier, and also to deal with situations where a service is provided to a recipient with multiple addresses in different provinces.
When dealing with supplies of tangible personal property, CRA emphasizes that the supply is made in the province where the tangible personal property is located. For intangible personal property, the emphasis is on where the intangible personal property can be used.
If you think these rules are complicated, you are right, at least compared to what we are used to. Most importantly, the seller’s place of residence is usually not relevant, even if they are in a non-participating province like Saskatchewan. It could mean significant changes to your accounting and billing systems, since you can no longer count on just a standard 5% GST across the country. It is highly recommended that you consult with your accountant. The consequences of not complying could mean a tax bill after a CRA audit.
HST has attracted a lot of press in Ontario and BC, with consumers and businesses largely on opposite sides. The controversy makes it unlikely that Saskatchewan will wade into the pool in the near future, but as you can see, we are still going to have to deal with it.