HST checklist and saving tips for tax troubled smaller firms

Caught unprepared by the Harmonized Sates Tax (HST)? Wondering how you might recoup lost business from tax traumatized customers?

ITBusiness.ca asked tax experts and analysts focused on the small and mid-sized business (SMB) space to provide an HST implementation checklist, and even a few tips on how smaller firms can save some money while keeping on the good side of the taxman.

Despite a long government campaign to get taxpayers onboard with the HST, which came into effect this July 1, most small firms in Ontario and British Columbia are opposed to the new tax regime, a recent poll shows.

What’s more, they are unprepared for it, according to the survey by done by Angus Reid Public Opinion for Intuit Canada, a tax software developer. The poll surveyed small business owners in Ontario and 100 B.C. business owners from June 7 to June 8, 2010.

On July 1, 2010, the goods and services tax (GST) and the provincial sales tax (PST) was merged into the HST in Ontario and BC.

In B.C., the HST rate is 12 per cent. Of that, seven per cent is allocated to the provincial government, while five per cent goes the Feds. In Ontario, the overall rate is 13 per cent — eight per cent provincial, and five per cent federal.

Angus Reid found as many as 79 per cent of small businesses in Ontario and 76 per cent in B.C. are against the HST implementation.

More that 54 per cent of respondents in Ontario and 47 per cent in B.C. won’t be ready to comply with the changes. No less than 35 per cent of respondents in both provinces also admitted they don’t understand the need for the new measures.

An overwhelming majority of respondents (82 per cent in BC and 91 per cent in Ontario) also fear HST will make consumers more price sensitive and would drive their customers to make purchases in provinces without HST (63 per cent in BC and 54 per cent in Ontario).

Only 38 per cent of B.C. respondents and 39 per cent in Ontario acknowledged “saved resources” as a benefit and just 13 per cent in B.C. and 23 per cent in Ontario believe HST would make businesses more competitive.

“We’ve heard quite clearly that HST represents a challenge for small businesses. However, making the switch doesn’t have to be an overwhelming administrative task,” said Gene Lewis, country manager for Intuit Canada.

He said HST does provide some benefits for businesses and preparation is the key to weathering the change.

Lewis said he believes many SMB owners are bogged down by the daily operation of their business and find it difficult to sit down and deal with the HST.”The reality is that they’ll have to deal with it sooner or later.”

Lewis advises that business owners consult with a tax expert of their accountant. He also said owners can avail of HST compliant tax preparation tools designed to ease the pain of transition.

For example Intuit’s HST Setup Tool in QuickBooks Pro and Premier 2010 helps users set up the HST tax rate in a company file and automatically updates all items, vendor customer and account records to the new tax codes, saving hours of work. Another product, the Tax Centre in QuickBooks streamlines e-filing of HST remittances.

Small businesses are struggling with the impact of change and haven’t yet seen the long-term promise, Lewis said. “However the Atlantic Canada experience does show that getting prepared pays dividends. The lesson is: prepare now, concentrate on finding benefits and capitalize.”

Atlantic Canada experience

The situation is reminiscent of Atlantic Canada’s move to HST in 1997, according to Peter Budreski, a chartered accountant based in Halifax, Nova Scotia who works with numerous SMB operators.
“Having gone through that experience as an accountant, it wasn’t the four-alarm fire that it’s perceived to be in Ontario and B.C. Choosing to ignore HST will get you nowhere in a hurry,” he said.

Budreski acknowledge there may be some backlash from consumers, but said the harmonization will also provide tax handling benefits that will result in savings for business.

Never to late to save

The HST implementation began about a week ago, but even if you haven’t done anything about it there still some time get your business in gear and even take advantage of some HST-related savings.

Right off the bat, businesses save money and time because of reduced paper work, according to Jake Anand, president of Softron Inc. a Mississauga, Ont-based developer and vendor of taxation software.

Previously businesses had to prepare separate tax declarations for the PST and GST, he said.

Anand characterized PST collection as “archaic and cumbersome”.

The rules were too complicated, he said. “It was often difficult for SMBs to determine whether they should charge customers PST or not. There was also no online mechanism to file for PST.”

Satinder Chera, vice-president for the Canadian Federation of Independent Businesses (CFIB) in Ontario noted that more businesses would have been prepared and accepting of the HST had the rollout been handled properly.

“The government spent more time defending the HST rather than explaining its benefits,” he said.

Further confusion was caused by seeming uncertainty about the HST provisions. For instance, Chera said, it was only a week before implementation that the government announced businesses owned by persons with First Nations status would be exempt from the HST.

HST checklist

You need to do the following to make your business HST compliant.

  1. Consult with a tax professional to determine how the HST will affect your business. Make plans to change you systems and procedures.
  2. Make sure you collect the right amount of tax on goods and services you sell. Update sales equipment. Ensure the rate in the billing or point-of-sale system you use reflects the accurate amount.
  3. Ensure that marketing collaterals — such as ads, signs, coupons, catalogues, newsletters, and brochures — reflect the appropriate HST changes.
  4. Prepare your financial plans, budgets and forecasts to factor in the HST. For example, you are entitled to the ITC but need to pay the PST portion upfront and wait for reimbursement later. This means money out your reach until the reimbursement comes in.
  5. Consider including tax clauses on contracts and agreements to make sure clients are aware of the HST.

Here are some ways SMBs can realize savings on the HST:

Take advantage of input tax credit (ITC) – This reimburses businesses for purchases that were previously PST-exempt but are now covered by the HST. Businesses still have to pay the PST portion but can get reimbursed 100 per cent of that expense through the ITC.

Benefit from HST transition credit – A credit of $300 to $1,000 is available for businesses to offset expenses incurred during the transition.

HST point-of-sale rebates – ING said there will be HST point-of-sale rebates on gasoline and diesel fuel (B.C. only), books, children’s clothing, footwear, car seats, booster seats, diapers, feminine hygiene products, print newspapers (Ont. only) and qualifying prepared foods and beverages that cost less than $4 (Ont. only). These items will be taxed at five per cent GST only.

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