Planning for transitioning from HST to GST/PST

Diana Mau, C.A.

205-8833 Odlin Crescent, Richmond, B.C.

Tel: 604-279-9270

www.dianamau.bc.ca

History of consumer taxes

Prior to July 1, 2010 Federally, we have 5% GST Provincially, we had 7% PST Total 12%

History of consumer taxes

On July 1, 2010, GST & PST combined together to become 12% HST (Harmonized Sales Tax)

HST is a combination of Federal 5% GST plus BC portion of 7% to 12

HST basically follows the rules of GST with some minor allowances

April 1, 2013 revert to GST/PST

HST drops from 12% to 5% GST PST of 7%

Mechanism of GST

Multi-stage tax GST applies to a very broad base of most property &

services, including real property Refund of GST to businesses through the Input Tax

Credit (ITC) on taxable supplies Businesses collect GST on sales from its customers

and claim back all its GST paid on purchases GST is truly a tax borne by final consumers Efficient Tax, avoid tax cascading

Exceptions to general taxable supplies- Zero-rated

Instead of the general 5% GST, the 5% become 0% on certain items that the Govt consider necessary, such as

Basic grocery, farm livestock, fishery Prescriptive drugs, drug dispensing fees Medical devices Exports International transportation except in North

America

Exempt Goods & Services

Under the exempt supply rules, businesses do not charge GST/HST on sales from the customers, but businesses cannot claim the GST/HST paid on the purchases.

Examples of Exempt Supplies

Used residential housing- no HST on purchases of used homes

Most health, medical and dental services performed by licensed physicians or dentists

Child care services Educational services Music lessons Financial services

Elect to be Exempt Suppliers

Small businesses with annual sales under $30,000 may elect not to be a taxable supplier, and be an exempt supplier

Usually beneficial for those small businesses who deal with final consumers and who have little purchases on which GST/HST being paid, e.g. some small home-based businesses

Understanding PST

Single (final) stage tax A much narrower base than GST Applies to most goods Real property and most services not

taxable Notably are new home purchases, home

repairs, restaurant services

PST Imposition General rate of 7% on tangible personal property

(goods) Liquor – 10% Vehicles under $55,000 – 7%; $55,000 to <$56,000

– 8%: $56,000 to <$57,000- 9% & $57,000 or over - 10%. No graduation rate.

Boats & aircrafts – 12%, no GST 7% on related services 7% on legal services Accommodation – 8% + 2% hotel tax

Tangible personal property -goods

Tangible goods that you can see, weigh, measure, feel or touch

Also included are gas, heat, electricity But does not include real property

Taxable Goods

Alcoholic beverages Automobiles & parts Boats Building materials Clothing & footwear Furniture & appliances Natural gas, heat, telecommunications Office supplies & equipment

Taxable goods – Exemptions (1)

All food for human consumption (basic groceries and restaurant meals)

Bicycles Children-sized clothing & footwear Adult-sized clothing and footwear

purchased for children under the age of 15 Used clothing & footwear under $100

Taxable goods – Exemptions (2)

Books, newspaper & periodicals Medications (prescriptive & specific over-

the counter medications) Vitamins School supplies Energy products for use in residential

dwellings

Taxable Related Services

Repair or maintain of taxable goods, such as automobiles, knives, watches TVs, stereos, office equipment or computers

Apply protective treatments to taxable goods such as fabric protection, rust proofing

Restore taxable goods such as furniture

Exempt Related Services

Services to exempt goods such as repair bicycles

Cleaning services Services to clothing & footwear Services to household appliances such as

fridges, stoves, ovens, dishwashers, washers, dryers, freezers, vacuums, rug cleaners, curtains & drapes

Services to animals

Exemptions specific to businesses

Goods purchased for resale or lease Goods incorporated into goods for resale Eligible machinery & equipment for use in

manufacturing , logging mining etc Specified goods purchased for use by

qualifying farmers & fishermen

Exemptions - specific circumstances

Goods shipped directly by the seller outside B.C.

Eligible goods purchased from small seller Independent sales Contractor

Small Seller

Located in BC but does not maintain an established business premises, such as home based is O.K.

Sells taxable goods or services Gross annual taxable sales under $10,000 Not registered as a vendor

Independent Sales Contractor (ISC)

Not an agent or employee of the direct seller Offer to sell exclusive products at temporary

locations like PNE/fairs Pay PST on the suggested retail price when

purchase from direct sellers Purchase exclusive products from a direct seller

or another ISC for resale or personal use ISC charges & collects PST from customers &

reimburse themselves for PST paid

Example of HST vs GST/PSTExample 1

12% HST

Example 2

5%GST /7%PST

Legal service provided $1000 $1000GST/PST collected $120 GST $50

PST $70

Expenses $600 $600HST GST/PST paid on expenses

$72 GST $30

PST $42

Net GST/PST remittance $48 GST $20

PST $70

Amount of non-refundable PST $42

Consumer paid $1120 $1120

Bookkeeping for HST

DR. CR.

Cash $1,120

HST payable $ 120

Fee revenue $1,000

Cash $672

HST receivable $ 72

Office supplies/ Equip $600

Bookkeeping for GST/ PST

DR. CR.

Cash $1,120

GST payable $ 50

PST payable $ 70

Fee Revenue $1,000

Cash $672

GST Receivable $ 30

Office supplies/equip $642

Registration to collect PST

Vendors of PST taxable products / services must register and collect PST

Vendors include those who sell & lease taxable goods, provide related services, provide 4 or more short term accommodation, provide legal services, provide telecommunication services, direct sellers to independent sales contractor

Registration not required

Person who does not make taxable sales Persons excluded from definition of

vendor including Small Seller Independent Sales Contractor

Registration for Manufacturers & Wholesalers

Manufacturers/Wholesalers who don’t make retail sales are not required to register.

Required to provide exemption certificate on purchase of raw materials or goods for resale.

Manufacturers/ Wholesalers who make retail sales are required to register unless make infrequent sales, can remit PST as casual remitter.

PST registration

PST registration begins on Jan 2, 2013 PST registration done prior to April 1,

2013 New 11 digit PST numbers

When PST is due

Earlier of date consideration is paid or is due

For most businesses (other than exempt or small suppliers), consider making payments or getting invoice prior to April 1, 2013 to save PST even if not taking possession of goods before April 1, 2013

Housing, Transition Tax & Rebate

What you need to know about HST/GST/PST on new housing transition tax, rebate & vendor information requirement

HST of 12% on new housing

Until March 31, 2013, HST of 12% on new housing, comprising of Federal GST of 5% and B.C. portion of 7%

Federal GST Housing Rebate

Federal Govt Rebate equals 36% of the 5% GST paid on the first $350,000 to a max of $6,300 ($350,000 x 5% x 36%)

The GST rebate is phased out on a straight–line basis for homes priced between $350,000 and $450,000

No Federal rebate for homes priced at $450,000 or above

B.C. New Housing Rebate (1)

From July 1, 2010 to March 31, 2012, BC rebate equals to 5% of new home price (or 71.43% of tax) up to a max of $26,250 (or 5% of $525,000)

From April 1, 2012 to March 31, 2013, the max B.C. rebate is increased to a max $42,500 (or 5% of $850,000)

B.C. New Housing Rebate for owner built new homes (2)

April 1, 2012, max rebate increased to • $42,500 if HST is paid on land• $28,475 if no HST is paid on land Rebate available on homes under

construction at March 31, 2013, home must be occupied and rebate apply before April 2017

B.C. New Housing Rebate (3)

In addition, during the HST period from July 1, 2010 to March 1, 2013, B.C. Govt estimates that there would be about 2% savings on the PST otherwise payable on building cost that may be passed to home owners.

Hence for lower cost homes (max $850,000), there should be no increase in B.C. portion of taxes

B.C. First Time Home Buyer $10,000 Refundable Tax Credit

Effective between February 21, 2012 to March 31, 2013

For B.C. residents who are first-time home buyers ( has never previously owned a primary residence anywhere in the world) and who purchase an eligible new home as primary residence

B.C. First Time Home Buyer $10,000 Refundable Tax Credit

For new homes purchased from a builder. a written agreement of purchase and sale is entered into on or after Feb 21, 2012 and sale is completed prior to April 1, 2013

HST is payable on the home No one else has claimed the $10,000

bonus

B.C. First Time Home Buyer $10,000 Refundable Tax Credit

For owner-built homes, a written agreement of purchase is entered on or after Feb 21, 2012 and construction of the home is completed or occupied before April 1, 2013

No one else has claimed the $10,000 bonus

How is the credit calculated

5% of the home price to a max of $10,000 Claw back if single individual net income

>$150,000 @ 20 cents per every dollar, zero at net income of $200,000

Claw back for couples net income > $150,000 @ 10 cents per every dollar, zero at net income of $250,000

No PST on New Housing, but 2% B.C. Transition Tax

Effective April 1, 2013, no 7% of B.C. portion of HST on new homes

2% B.C. transition tax on substantially renovated or new housing where 10% or more is completed as of April 1, 2013 and the sale occurs before April 1, 2015

No tax if less than 10% completed on April 1, 2013

Rebate to builders for work done after March 31, 2013

Intended to compensate builders for PST paid on materials after March 31, 2013

Rebate based on % completion

Transition Rebate to Builders

% completed-April 1, 13 Rebate as % of sales price

- Less than 10% No transition tax

- 10% - < 25% 1.5%

- 25% - < 50% 1.0%

- 50% - < 75% 0.5%

- 75% - < 90% 0.2%

- 90% or more none

Transition Rebate to Builders

To claim the transition rebate, builder will be required to certify that the builder paid PST on substantially all of the building materials that were incorporated on or after April 1, 2013 into the construction

The builder will be required to keep receipts fro audits

Example on B.C. Transition Tax

Builder enters into a sale agreement to sell a newly constructed home for $600,000

Ownership & possession date June 1, 2013

The home is 80% completed on April 1, 2013

Example on B.C. Transition Tax

Builder has to collect 5% GST on $600,000 to Federal Govt

Builder has to collect 2% B.C. transition tax = $600,000 x 2% = $12,000

Builder can claim builder’s rebate of 0.2% = $600,000 x 0.2% = $$1,200

Builder can make a net remittance of $10.800 ($12,000- $1,200) to B.C.

Other transition provision for contractors

Contractors subject to PST self-assessment on materials purchased prior to April 1, 2013 but used after March 31, 2013 to improve property on both residential & commercial real property

Builder Disclosure Requirements

Applicable to agreement made on or after Feb 17, 2012 with closing after Dec 31, 2012

Disclosure must include no 7% B.C. portion of the HST and 2% B.C. transitional tax for ownership & possession of newly constructed or substantially renovated housing between April 1, 2013 and April 1, 2015

Must provide disclosure to purchaser at later of Jan 2, 2013 or the date agreement signed

Builder Disclosure Requirements

Additional information required for sales closing after March 1, 2013 on

Consideration for GST purposes Whether transition tax applies and if so,

the amount of B.C. transition tax % of completion as of April 1, 2013 Amount of B.C. transition rebate claimed

Builder Disclosure Requirements

Failure to comply Builder Disclosure Requirements, builder is subject to penalties of

1% to a max of $10,000 per home Penalty quadruples of willful default or

gross negligence

Impacts for consumers

Whether PST will increase or decrease the cost of purchases for consumers?

What’s not taxable under PST

HST GST + PST

Most newspaper 12% 5% GST, no PST

Certain school supplies 12% 5% GST, no PST

Most magazines 12% 5% GST, no PST

Thermal insulation, weather stripping, caulking

12% 5% GST, no PST

First aid kits 12% 5% GST, no PST

Smoke detector <$250 12% 5% GST, no PST

Food producing plants 12% 5% GST, no PST

What’s not taxable under PSTHST GST + PST

Adult sized clothing for children 12% 5% GST, no PST

Shoe repairs 12% 5% GST, no PST

Tailoring services 12% 5% GST, no PST

Dry cleaning 12% 5% GST, no PST

Used clothing or footwear for less than $100

12% 5% GST, no PST

Snack foods 12% 5% GST, no PST

Prepared foods 12% 5% GST, no PST

Restaurant meals 12% 5% GST, no PST

What’s not taxable under PSTHST GST + PST

Basic cable TV services 12% 5% GST, no PST

Local residential phone 12% 5% GST, no PST

Services to household appliances as fridges

12% 5% GST, no PST

Cleaning services 12% 5% GST, no PST

Home security monitoring 12% 5% GST, no PST

Services to real property – painting, roofing plumbing, electricity

12% 5% GST, no PST

Landscaping to real property 12% 5% GST, no PST

What’s not taxable under PSTHST GST + PST

Computer software repairs service, software installation

12% 5% GST, no PST

Taxi fares 12% 5% GST, no PST

Camping sites 12% 5% GST, no PST

Domestic air 12% 5% GST, no PSTNewly constructed homes 12% 5% GST, no PST

New homes where construction begins before April 1, 2013

12% 5% GST, + 2% B.C. transition tax

Real estate commission 12% 5% GST, no PST

What’s not taxable under PSTHST GST + PST

Drugs & medications e.g.

Cough syrups, flu remedies12% 5% GST, no PST

Vitamin & supplements 12% 5% GST, no PST

Admission fees, movies 12% 5% GST, no PST

Memberships, golf /sports 12% 5% GST, no PST

Bicycles 12% 5% GST, no PST

Safety helmets 12% 5% GST, no PSTChildren’s ski gloves, boots 12% 5% GST, no PST

Adult’s sized ski boots for children < age 15

12% 5% GST, no PST

What’s not taxable under PST

HST GST + PST

Massage therapy 12% 5% GST, no PST

Fitness training services 12% 5% GST, no PST

Hair/barber services 12% 5% GST, no PST

Veterinarian services 12% 5% GST, no PST

Accounting services 12% 5% GST, no PST

Interior design services 12% 5% GST, no PST

Wedding planning 12% 5% GST, no PST

Funeral services 12% 5% GST, no PST

What’s not taxable under PST for consumers

HST GST + PST

Cigarettes 5% GST, no PST

Cigars 5% GST, no PST

Chewing Tobacco 5% GST, no PST

Nicotine Replacement products

5% GST, no PST

What’s going up in PST for consumers

B.C. first time new home buyers’ refundable tax credit up to $10,000

For purchase agreement entered into on or after February 21, 2012 and sales completed prior to April 1, 2013, i.e.sales subject to 12% HST

Beneficial for new home buyers of homes under $850,000

What’s going up in PST for consumers

Purchase or lease of vehicles

HST GST + PST

Under $55,000 12% 5%GST+ 7%PST

$55,000 to <$56,000 12% 5%GST+ 8%PST

$56,000 to <$57,000 12% 5%GST+ 9%PST

$57,000 and over 12% 5%GST+ 10%PST

What’s going up in PST for consumers

HST GST + PST

Children’s disposable diapers

5% 5% GST+7%PST

Alcoholic beverages 12% 5%GST+10%PST

Short term hotel accommodation

12% 5%GST+ 8%PST

Impacts for Businesses

Consider whether your business is taxable or exempt

Most businesses are taxable suppliers, the PST will increase their cost of doing business. Buy or pay before April 1, 2013.

Exempt businesses may realize savings. Buy after March 31. 2013.

Need more information ?

CTB (Consumer Taxation Branch) Phone: 1-877-388-4440 or 604-660-4524 Email: CTBTaxQuestions@gov.bc.ca Website: gov.bc.ca/pst Website: sbr.bc.ca