Small business and the HST

The Harmonized Sales Tax (HST) promises to have wide-ranging effects on small businesses.

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The good news is that businesses will now have to file only one tax return, cutting down on their paperwork. Costs will go down for many small enterprises, since the provincial sales tax they now pay is not recoverable, while the Goods and Services Tax (GST)/HST is recoverable in most cases. On the other hand, some small businesses with non-business customers may face significant resistance to this new tax. No matter what kind of small business you operate, it’s important to understand how the HST works. Here is some important information: Register your business for the HST – “You are required to register for the GST/HST if your taxable sales exceeded $30,000 in the previous year,” says Chartered Accountant Marvin Martenfeld, a partner with Meyers Norris Penny LLP in Toronto. “If you are required to register, you are also obligated to collect GST/HST on taxable goods or services. You may claim any GST/HST amount back in a GST/HST return, provided you are registered and you use the purchase in your taxable sales. Even if you are not required to register, you should consider doing so, because you can recover the 13-per-cent HST paid on your purchases used in taxable revenues.” Know what GST/HST rate applies to your sales – “There are three categories: GST/HST taxable sales at the five-per-cent rate (GST) or 13-per-cent rate (HST); zero-rated sales; and exempt sales with no tax being charged,” explains Chartered Accountant Lloyd Lindsay of Mississauga. “Businesses with GST/HST taxable sales or zero-rated sales can deduct all the GST or HST that they pay on their purchases from the taxes they collect. Exempt sales bear no tax, but these businesses won’t be able to claim the increased HST tax charged on their business costs.” Exempt sales include sales made by most non-profit organizations, charities, medical and dental practitioners and financial service providers. Double-check your systems – “Conduct periodic checks of your invoicing systems to ensure that they are all working well and charging the correct rate of tax,” advises Martenfeld. “This includes sales receipts, invoices and contracts.” Take advantage of available assistance – “Ontario has issued industry-specific bulletins to help businesses through the transition to the HST and beyond,” says Lindsay. “A good place to start is the Ontario Ministry of Revenue website. A tax specialist, such as your CA, is also a valuable source of information. “The rules are complicated,” says Martenfeld. “New information and updates are frequently released. Your CA can help make sure you stay on top of how the HST affects your small business.” Brought to you by the Institute of Chartered Accountants of Ontario