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• Introduction
• Implementation Timeline
• OHST Impact - At-a-Glance
• Impact
• OHST Can Benefit Your Client
• The 3 C’s
• Resources
2 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
Introduction – what is OHST?
• Effective July 1, 2010 Ontario Retail Sales Tax (“ORST”) will no longer apply in
most cases
• BC has made a similar announcement for the BC Social Services Tax
• The same day, the rate of GST applicable to goods and services supplied in
Ontario will increase from 5% to 13%
• Effective rates across Canada will be:
Ont, Nfld., NB, NS = 13%
BC = 12%
MB, Sask., Alb., Quebec & Territories = 5% (QST may apply at 7.5%)
• One single federal tax (OHST 13%), but two elements (5% federal and 8%
provincial)
3 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
Introduction – why harmonize now?
• The federal cash assistance – the federal government will pay the province
$4.3 billion to harmonize
• Agreement on point of sale rebates of the provincial portion for consumer items
(children’s clothing and footwear, children’s car/booster seats, diapers, books
and feminine hygiene products)
4 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
HST Can Benefit your Company!!
5 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
Introduction - how do OHST & ORST differ?
OHST ORST
• OHST = VAT @ 13% on supplies made in • ORST = Single stage tax on consumption in
Ontario Ontario (various rates, base rate is 8%)
• Tax at each stage of the sales chain with • Tax applies to the final consumer. If consumer is
ITC or rebates to registered purchasers a business, there is some cascading of tax
[BUT – THERE WILL BE SOME
RESTRICTIONS!]
• No exemptions on purchases, but full ITC • Exemptions for raw materials, machinery and
available on inputs equipment, CADCAMS, etc.
6 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
Restricted ITCs for the provincial component of OHST
Important dates
July 1, 2010
Implementation date
March 26, 2009
Announcement date?
8 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
OHST Impact – at-a-glance
? Costs
Benefits
• Telecomm businesses
• Retail/wholesale
• New home • Professional services
• Health care professionals builders??? • Commercial real estate
• Residential rentals • Charities • Manufacturers
• Senior care residences • Non-Profits • Energy and Resources
• Banks • Hospitals • Freight services
• Insurers • Schools • Travel services
• Other financial • Universities
services providers • Municipalities
• Individual consumers
?
9 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
Impact - how does OHST work vs. ORST?
Under GST & ORST: Pay $500 + $25 GST + $40 ORST, less $25 ITC. Out of
pocket cost is $540
Under OHST: Pay $500 + $65 OHST, less $65 ITC. Out of pocket cost is $500
$40 less
Under GST & ORST: Pay $2,000 + $100 GST, less $100 ITC. Out of pocket cost is
$2,000
Under OHST: Pay $2,000 + $260 OHST, less $260 ITC. Out of pocket cost is
$2,000
Same
10 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
Impact - how does OHST work vs. ORST? (continued)
Under GST & ORST: Pay contractor $10,400 plus $520 GST, less ITC of $520. Out
of pocket cost is $10,400
Under OHST: Pay contractor $10,400 plus $1,352 OHST, less ITC of $1,352. Out of
pocket cost is $10,400
Same
• BUT! Assume the contractor’s charge was $5,000 labour and $5,400 ORST
included equipment
Under OHST – contractor recovers the $400 as an ITC! If the contractor passes on
this saving, pay contractor $10,000 plus $1,300 OHST, less ITC of $1,300. Out of
pocket cost is $10,000
$400 Saving!
11 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
IMPACT - How ORST builds into costs
S
E
CLIENT
E E
S
S
E “End-user” supplier E
12 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
How Can OHST benefit your client!!
13 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
How can OHST benefit your clients (or harm them)?
The Good
• A company passing on its OHST savings in enhanced pricing to its clients
The Bad
• The newly non-recoverable OHST expenses that were not subject to ORST -
such as energy costs. A supplier must decide whether or not to pass on these
increased costs to its clients.
• Suppliers who generally face restriction on ITC recovery, such as financial
institutions, not-for-profit agencies and small suppliers face a real additional
cost.
14 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
An Example of the OHST cost/benefit for a wholesaler
GST/ORST OHST
Taxable Expenses 25,000,000 25,000,000
*If energy costs are higher, then the level of non-recoverable OHST will increase
** As the level of PST fluctuates, so does the net PST cost
15 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
What should your clients be aware of?
Compliance
Costs
Customers
16 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
Compliance
• Transition rules – when to collect OHST on supplies that straddle July 1, 2010
‒ Services provided before July 1, 2010 but paid for after
‒ Pre-paid services delivered after June 2010
‒ Pre-paid goods delivered after June 2010, etc.
‒ Tax-in contracts, both sales and purchases – cost or windfall?
• Systems
‒ Ensure correct tax rate is applied to supplies – need to collect tax on previously exempt
sales?
‒ Ensure correct ITC rates applied to purchases (allocation methods become much more
important), plus adjustments (credit notes, refunds, etc.) – TRACKING
‒ System and staff readiness – TRAINING?
17 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
Compliance – Point of Sales Rebates
• Receipts must indicate that the item is subject to the rebate (i.e., 13% charged,
8% of the 13% is rebated, net tax collected 5%)
• Vendors must ensure their products qualify for the POS rebate (for example,
vendors must ensure sizing of clothing is accurate and supportable)
18 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
Compliance – Credits and Refunds
• Issues include
‒ Credit notes – cash refund in July 2010 for purchase made in June 2010
‒ Store credit – credit for new product purchased in July 2010 using credit from
a product purchased in June 2009
‒ Returned items :
• For a full refund – GST and PST refunded
• Exchange for a more expensive item, 8% provincial component of HST applies to
the additional consideration
• Exchange for a cheaper item, purchaser can recover “overpaid” PST
• Vendors must ensure that their systems recognize that some sales are only subject
to 8% tax
‒ Coupons issued in June 2010 and redeemed in July 2010
19 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
Cost
• Impact analysis
‒ Is OHST going to cost the organization or save it money – impact on
budgeting and forecasting on future needs
‒ Does OHST impact different areas of the organization uniformly or are
certain areas impacted more than others
‒ Bargaining with suppliers to receive suppliers’ cost savings
• Cash flow
‒ OHST applies to a much greater tax base, after June 2010, organizations
pay a much higher amount of tax to suppliers and must wait for a refund for 1
month to 1 year depending on filing regimes
‒ Special methods/quick methods may provide increased savings, but any
changes must be reviewed carefully
20 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
Customers
• Customers will want to negotiate ORST savings from your clients, as they will
from their suppliers.
• Be aware whether your customer is indifferent to OHST charge on sales
• Expect cash flow issues to be raised
• Make sure the right tax is charged and collected
21 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
How to take advantage of the OHST?
Improve operational
Streamline tax process and controls
efficiency
22 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
Resources
• People
‒ Carlos Lobo (905) 315-6775
• Reading Materials
‒ Search “Harmonized Sales Tax “ on the Deloitte.ca website
• Programs
‒ OHST Impact Analysis
• Brief questionnaire
• Financial impact analysis spreadsheet
• Minimal cost to client (circa $3,000)
• Report highlighting areas of concern
‒ Tailored Custom Review
23 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities
QUESTIONS?
24 OHST & Consumer Business - November 4, 2009 © Deloitte & Touche LLP and affiliated entities