Ontario mulls changes to software tax

After years of complaints, the Government of Ontario is preparing new legislation to tackle the thorny issue of Ontario Retail Sales Tax as it applies to software and services.

“”We’re preparing our response; that’s where we

stand,”” said Sue Craig, senior information officer for the government. “”We’ve done quite a bit of consulting, attended industry associations and sort of bounced stuff off people.””

Much of that consultation took place last November when the government met with representatives from the Information Technology Association of Canada for Ontario and other industry bodies. The most recent provincial budget, delivered last week, included a short paragraph on the prospective changes and “”announced a commitment to consult with taxpayers on simpler and more effective retail sales tax definitions and rules for computer software. The consultations identified potential options for both improving policy and adminstrative effectiveness.””

Draft legislation will be posted on the finance ministry’s Web site and interested parties will be able to e-mail their comments and suggestions to the ministry. Changes to existing legislation should take place this fall. These changes will probably not be retroactive beyond the date the draft legislation is posted online, which is expected to happen later this summer, said Craig.

Bob Horwood, president of ITAC Ontario, speculated that the drafts could appear in the next few days. ITAC Ontario has vigourously argued for changes in the existing legislation in the past. Horwood called the drafts “”at least a step in the right direction,”” but expressed concern that legislation amendments would only be retroactive for a matter of months. “”We’ll make sure we take issue with that,”” he said.

One person who has dealt with the vagaries of the legislation is Pat Maloney. Her company, Plus Delta Communications Inc., based in Ottawa, was audited in 1999 and received a $60,000 assessment dating back to 1995. Maloney said she has since recouped about 80 per cent of that assessment by sending what she esimates to be “”more than 100 letters”” to the government. Her computer services company isn’t in operation anymore, but she has held onto the corporate name just to have a platform through which to persue recompense.

The government just doesn’t have the resources to effectively deal with the software taxation issue, according to Audrey Diamant, a partner at PricewaterhouseCoopers. Diamant was also part of the government consultations held last November.

“”What do you do with individuals that have been assessed to date where they have paid and it’s had an impact on their businesses? It’s really too difficult an issue for Ontario to deal with,”” she said.

According to the existing legislation, the government is within its rights to assess a company’s software purchases going back four years, but that legislation really isn’t a good fit for software, said Diamant. “”It’s almost as if you’re forcing the rules a bit to accomodate software and they don’t cleanly fit. Because of what I would argue is the unusual nature of software and certainly the industry would view the rules as exceedingly complex, they were asking for a concession.””

The ministry is aiming to simplify the tax rules by drafting new legislation, according to Craig. “”We’re preparing to have clearer and easier to understand definitions and (a) degree of flexibility as well,”” she said.

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