Planning for Harmonization: Ontario and BC's planned Harmonization for July 1, 2010 - Are you Ready?

Both the Ontario and BC Governments have announced that they plan to harmonize their existing provincial sales tax regimes with the federal Goods and Services Tax (GST).  These two provinces will become part of the Harmonized provinces, and on July 1, 2010 will become part of the Harmonized Sales Tax (HST) world.  Are  you ready?  We hope to highlight what needs to be done to get you ready.

Planning is the Key

Commodity taxes impact several aspects of every organization and there are many planning opportunities that should be considered to ensure your organization is ready for this change.  Planning can result in tax saving opportunities, ensure that you are complying with tax laws and result in both tax and operationally efficient strategies.

Pre-Implementation

• It doesn't matter how big or how small your organization is, an implementation committee should be established. This group of key individuals should understand all of the various elements of your business.
• The committee should consider the impact of HST on:
  • Budgets and cash flow
  • Sales, purchasing and other systems
  • Documentation
  • Pricing Strategies
• Your staff - including your accounting, finance, IT and HR departments - may all require training.

Planning - Sales

• All sales and point of sale systems must be reviewed. Consideration must be made for tax coding and invoices will need to be adjusted to take into consideration different tax rates (5%, 12% and 13%).
• Point of purchase rebates will be implemented and sales systems must be able to accommodate this.
• Transitional periods may exist whereby the Ontario and BC Sales Tax Rates may remain in place and adjustments for returned goods and price adjustments will require that your accounting system handle both old and new rates.
• May need to consider having tax codes for property currently not subject to tax, but will be subject to the new HST.

Planning - Purchases

• All purchasing / accounts payable systems will require reprogramming. Various tax rates and federal and provincial components of tax will need to be tracked (5%, 12%, 13% and 7% and 8% provincial components).
• Employee expense report templates may need to be modified.
• Self-assessment processes may need to be implemented or amended.
• Deferral or acceleration of certain purchases should be considered for purposes of saving tax dollars.
• Purchase vs. Lease decisions should be examined to determine if savings are available to your organization.

Planning - Contracts

• Existing contracts should be reviewed to ensure if they are tax-inclusive or tax extra. The implementation committee should determine which is more beneficial, review if opportunities exists, or clarify wording if it is unclear.
• Contracts that straddle the implementation date should be reviewed to ensure tax clauses address the change.
• Review the place of supply rules to verify whether the rate of tax to charge changes.
• If your organization is subject to restricted ITCs, your organization may require more detailed information from your suppliers and this may need to be itemized within your agreements.

Planning - Processes and Procedures

• It may seem that things will become simpler since you will be moving to one tax return. However, there may still be separate line items for the BC and Ontario provincial component of restricted ITCs.
• Templates will need to be updated such as expense reports and matrices.
• Systems should be tested prior to implementation.
• Employees will need training.

Planning - Special Sectors

• Financial institutions, real property, public sector bodies and telecommunication industries all have special rules and challenges ahead. Contact your Collins Barrow advisor if you are in these special areas.

Why Plan Ahead?

By taking advantage of the Ontario and BC Harmonization, your organization can:

• Increase market share with more aggressively priced products by taking advantage of net ORST/OHST savings in underlying costs.
• Decrease costs by identifying major suppliers from whom to extract harmonized sales tax savings.
• Enhance cash flow by utilizing tax cash flow "best practices" to optimize cash flow and enhance capital.
• Improve operational efficiency by streamlining tax process and controls.
• Improve customer retention levels by avoiding future relationship damaging tax disputes with customers.

For further information or to determine how the Harmonized Sales Tax will impact your business, contact your Collins Barrow advisor

Rosa Maria Iuliano, CA, is a Tax Partner in the Ottawa office of Collins Barrow.