On July 1, the goods and services tax (GST) rate was from seven per cent to six per cent.
To assist your business through the transition, the Canadian Federation of Independent Business (CFIB) has assembled a GST Checklist highlighting areas you may need to address, as well as highlights of the general transitional rules. Given that the GST tax affects businesses differently, this checklist should be used as a general guide for your business. For detailed information, consult your accountant or the Canada Revenue Agency.
Sales and Billing Processes
• Update GST rate in sales equipment, such as cash registers, to charge the correct rate of tax.
• Ensure any revenues collected via automated payments from customer bank accounts are appropriately adjusted.
• Update price lists, catalogues and other sales materials that are preprinted with the new tax rate.
• Update website or online payment software for businesses that sell products or services over the Internet.
Purchasing and Accounting Processes
• Update accounts payable software.
• Update input tax credit calculations.
• Update taxable benefit calculations.
• Update formulas and spreadsheets, such as expense reports.
• Invoices received during the transition period should be entered carefully, as the business will be receiving invoices with tax rates at both the new and old rates.1
• Once the new rate takes effect, review automatic bill payments to make sure the rate change has taken effect.
• Watch for potential effects on rebate amounts and refund calculations.2 (eg. GST housing rebate and GST Quick Method).
• Businesses that cannot recover the full amount of the GST/HST may have to revise budget calculations for projects or general operations.
• Cash flow projections may also change.
General Transitional Rules*
• If GST becomes payable, or is paid without having become payable before July 1, 2006, the seven per cent GST rate will apply.
• If GST becomes payable on or after July 1, 2006, without having been paid before that date, the six per cent GST rate will apply.
• If GST is paid on or after July1, 2006, without having become payable before that day, the six per cent GST rate will apply.
• If either the date of an invoice, or the payment date under a written agreement, is earlier than the day the invoice is issued, GST becomes payable on the earlier date.
• Provisions of the Excise Tax Act that normally determine when the GST is payable will apply to determine the appropriate rate of tax. For example, in the case of a lease, GST becomes payable on the earliest day the payment is required to be made under the lease agreement.
*Source: Department of Finance and Canada Revenue Agency, May 2006.
In addition, for certain types of transactions specific transitional rules will apply. For more information on the specific transitional rules or any question on the GST rate reduction contact the CRA GST hotline at 1-866-959-7797 or consult their website at www.cra-arc.gc.ca .
Footnotes
1Any amounts invoiced before July 1, 2006 should be invoiced at the seven per cent GST rate.
2The rates for GST rebates and refunds have not changed, however, some of the calculations have changed due to the lowered rate.
