Businesses looking to avoid some of the pitfalls associated with Ontario's upcoming Harmonized Sales Tax (HST) need to start planning now, according to Paul Innocente, a certified general accountant with Sudbury's Freelandt Caldwell Reilly.
With the proposed HST due to come into effect July 1, 2010, many companies should look at the transitional rules available to their industries as the change-over date approaches, he said.
"Things will really heat up in the coming months," Innocente said to members of the Greater Sudbury Chamber of Commerce at a Nov. 24 gathering.
"If you start planning now and look at how to adjust, you can make things work better for you in the long run."
Although the full implementation is due to hit in July 2010, May 1 is the effective HST-free cutoff date for a number of business transactions.
Prepaying before May for goods and services, even if those due to be provided in July or later, will allow companies to sidestep the HST.
Among others, the new HST will add eight per cent to the cost of new home construction as well as resales. This means that an average resale home costing $302,354 would see $1,449 in additional taxes due to legal fees, appraisals, real estate commissions and home inspection fees.
However, the province has proposed a 75 per cent rebate on the provincial portion of the HST on the first $400,000 of a new home. This would allow for a maximum rebate of $24,000.
What's more, a home that's been at least 10 per cent built by July may be eligible for a rebate of the provincial portion, meaning that there should be a big push for early-year home building, said Innocente.
While businesses will be able to claim input tax credits, the province is looking at restricting large businesses making over $10 million in annual sales from being able to claim certain items. These include electricity used for anything other than farming or manufacturing, and non-Internet telecommunications services.
Although this restriction is proposed as a five-year temporary measure by the province, Innocente hints that, like many such government measures, there is always the possibility they will become permanent.
While there is much consternation over the province's move to harmonize the federal and provincial sales taxes in July 2010, the move is a net positive for companies, says Innocente.
By having a single tax, Ontario businesses will see half the red tape associated with collecting and auditing sales taxes, saving roughly $500 million every year.
Businesses should find some of the corporate tax cuts contained within the HST legislation, as tabled in November, to make the idea much more attractive. It proposes dropping the general corporate tax rate from 14 per cent to 12 per cent, and further down to 10 per cent within three years.
The small business tax rate will drop from 5.5 per cent to 4.5 per cent, while eliminating the 4.3 small business surtax altogether.
Firms in the manufacturing, processing and resource sectors will see their corporate tax rate drop from 12 per cent to 10 per cent, said Innocente.
"It makes Ontario companies more competitive in their own borders and outside the province. It'll lead for lower costs and a lower tax than the seven states Ontario competes with for manufacturing."
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