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Harmonizing Canada

There’s tax changes a plenty happening around the world and Canada is no exception. To help you prepare for the changes when using Xero, one of our earliest Canadian Partners Earl Rudolfo of SMBOnline 360° puts them in perspective.

On 1 July Ontario and British Columbia will be adopting the Harmonized Sales Tax (HST). The HST is the combination of Provincial Sales Tax (PST) and Goods and Services Tax (GST) combined into one unified tax.  The Ontario provincial government has proposed this new tax will merge the 8% PST and the 5% GST into 13% HST. In British Columbia, instead of 5% GST and 7% PST, it will be 12% HST.

Some transitional HST changes are already being phased in and although the HST is new to Ontario and BC, other provinces like Nova Scotia, New Brunswick, Newfoundland and Labrador have already adopted similar “tax blending” initiatives.

Some benefits for small businesses include:

  • By blending the taxes, some  businesses can now get back the PST cost as it does the GST cost on items it buys “to run its operations” through Input Tax Credits (ITCs)
  • Savings on input costs could make some businesses more competitive
  • There may be a time and expense cost saving by not having to manage and remit a separate PST return

When using Xero

Fortunately, for Canadian Xero users, making your accounting system HST ready is easy. You can accommodate this change in Xero by simply setting up another tax code (see tax code options video) with a 13% rate for Ontario or a 12% tax rate for BC.

Other things you should consider for the transition are:

  • Update accounts payable, invoicing, expense accounts ,tax credit and taxable benefits calculations
  • Update price lists and catalogues
  • Calculate the impact on your financial budgets. Determine how cash flow projections may change and plan your business spending accordingly
  • Know the dates the changes go into effect, paying particular attention to the transition rules and dates
  • Review what was previously subject to PST and what was not to determine the effect of the changes
  • Add new sales tax codes and items but do not delete the old codes and items
  • Review your forms and make any necessary changes
  • Modify any recurring invoices to accommodate the July 1 changeover date
  • Communicate with customers and suppliers and provide staff with training
  • Document any new procedures
  • Review new mandatory electronic GST/HST filing requirements
  • Edit accounts, items, customers and vendors so sales tax codes change on the effective date
  • Monitor transactions for transitional rules
  • Read, research, and try to model the effects of HST on your business

 

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4 comments

Jeff K. Wad
1 July 2010 #

I think that “Add new sales tax codes and items but do not delete the old codes and items” is important because for some customers who are in provinces that don’t have provincial tax (Alberta) then their customer tax rate will still be the same GST tax category I’ve been using all along.

As I understand it, for example, if I do business with customers in Ontario I will need to charge 13% and when I have customers in Alberta it is still 5% and when I work with customers in my home province of British Columbia then I charge 12%.

This will take a little while to go through all customers and update their tax codes but at least I do that once and pretty much won’t have to think about it too much thanks to Xero!

[...] Follow this link: Harmonizing Canada « Online accounting software news from Xero [...]

sherice
3 July 2010 #

Thanks Earl, great tips! Yet again we’re reminded of how fortunate we are to be working with you :).

Jason M Blumer
5 July 2010 #

Earl, you are the man! What great support Xero has in Canada with Earl!

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