Canada: Important Updates for GST/HST Registrants

 HST Rate Changes

There are upcoming Harmonized Sales Tax ("HST") rate changes that will necessitate modifications to accounting systems and invoicing processes for GST/HST-registered businesses operating in Canada. It is imperative that changes to accounts payable/receivable and invoicing systems be implemented as soon as possible to avoid any costly errors.

There are two significant dates to be aware of: July 1, 2016 and October 1, 2016.

Given the HST place of supply rules, many businesses (that are GST/HST registered) located outside of the provinces undergoing rate changes will, nonetheless, be impacted if they supply properties or services that are considered to be made in an affected province.

As of July 1, 2016:

• HST rate will increase in Newfoundland and Labrador – On April 14, 2016 the Government of Newfoundland and Labrador announced its intention to increase the provincial component of the HST to 10 per cent, effective July 1, 2016, resulting in an overall HST rate of 15 per cent. Transitional rules are required to determine which tax rate — the existing HST rate of 13 per cent or the new HST rate of 15 per cent — would apply in respect of transactions that straddle July 1, 2016.
• HST rate will increase in New Brunswick – The HST rate in the province of New Brunswick will increase from 13 per cent to 15 per cent effective July 1, 2016.
• Phasing out of recaptured input tax credits in Ontario – The requirements applicable to large businesses subject to the recapture of input tax credits in Ontario (in respect of the acquisition, importation, or bringing into Ontario, of a specified property or service) are being phased out gradually from July 1, 2015 to July 1, 2018. The Ontario rate of recapture will decrease from 75 per cent to 50 per cent effective July 1, 2016.

As of October 1, 2016:

• HST rate will increase in Prince Edward Island – On April 19, 2016, the Government of Prince Edward Island announced its intention to increase the provincial component of the HST to 10 per cent, effective October 1, 2016, resulting in an overall HST rate of 15 per cent. Transitional rules are required to determine which tax rate — the existing HST rate of 14 per cent or the new HST rate of 15 per cent — would apply to transactions that straddle October 1, 2016. The transitional rules are not yet available.

Changes to Filing a GST/HST Return

Effective May 16, 2016, the CRA changed how a GST/HST registrant can report different types of income on GST/HST returns filed electronically.

Before this date, the GST/HST return contained only one revenue line (line 101) for all types of income (both taxable and exempt). The CRA would use the amount reported on line 101 to automatically change the filing frequency of the registrant, regardless of the nature of the revenue reported therein. The GST/HST registrant would then have to contact the CRA to request a correction to their account because part of the income reported on line 101 was not GST/HST taxable income generated in Canada.

Now, the registrant (or an authorized representative) has the option to report separately on a GST/HST electronic return:

• Line 90: Taxable sales (including zero-rated supplies) made in Canada;
• Line 91: Exempt supplies, zero-rated exports, and other sales and revenue; and
• Line 102: When applicable, an associate's taxable sales (including zero-rated supplies) made in Canada.

These changes are intended to provide the CRA with complete information to determine the appropriate filing frequency of the registrant (whether annually, quarterly, or monthly).

Your Crowe Soberman advisor can advise you with respect to these changes and how they may affect your business. For more information or details about GST/HST obligations, contact the author of this article.

Connect with the Author

Frédéric Pansieri, BBA, CPA, CA, Director, Commodity Tax – Frédéric has extensive commodity tax experience, as well as corporate income tax experience at the federal level and in various provincial tax jurisdictions across Canada. You may reach Frédéric at frederic.pansieri@crowesoberman.com.

Links

More information on transitional rules for Newfoundland and Labrador is available here: http://www.fin.gov.nl.ca/fin/tax_programs_incentives/personal/transitional_rules.html .

More information on the New Brunswick HST rate change is available in Crowe Soberman's Tax Bulletin dated April 7, 2016, which is available here: New Brunswick HST Rate Increases to 15%.

More information on the phasing out of recaptured input tax credits is available on the CRA website here: http://www.cra-arc.gc.ca/E/pub/gi/gi-171/gi-171-e.html .

More information on the changes to filing a GST/HST return is available on the CRA website here: http://www.cra-arc.gc.ca/E/pub/gp/rc542/README.html .

The information in our Tax Letter is current to June 20, 2016. The information contained here is of a general nature and is not intended to address the particular circumstances of an individual or entity. We endeavor to provide accurate and timely information; however, there is no guarantee that such information is accurate in the future. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this publication.