What Small Business Owners Need To Know About The BC HST Repeal

bc hst repealWe are fortunate to have Mike Boven, commodities tax expert from BDO Canada, joining us again to go into further detail regarding the upcoming BC HST repeal and what it means to the average business. If you aren’t in retail, what should you be doing to ensure you are following the transitional rules?

Then To Now – What’s Changed

Back on July 1st, 2010, if you were a service business doing an invoice for August 1st and the client hadn’t been invoiced for a number of months you had to try and figure out how much of the service was provided before the tax change and how much of it was provided after and invoice accordingly. Needless to say, it was a nightmare. It left an open debate between clients and vendors on the reasonable allocation of the services between those two periods.

bc hst repeal

Finance Minister Kevin Falcon announcing bold changes to HST after referendum.

The New Transitional Rulesbc hst repeal

I’m happy to say that the transitional rules on the way back to a disharmonized sales tax system are much simpler. The taxes that must be collected are based on the date that the tax becomes payable.

  • If the taxes become payable on or before March 31 it is charged with HST
  • If the taxes become payable on or after April 1, 5% GST and/or PST may apply depending on the nature of the service

You don’t really need to focus so much on when the service was provided or when a good is delivered, just when the tax becomes payable.

Anti-Avoidance Rules

There are, however, a long list of anti-avoidance rules but this is also refreshingly simple since the Province of BC has said, “In terms of timing as to when the tax is payable, we are simply going to go with the federal timing rules.”

The reason they are willing to go with the federal timing rules is because they accelerate the tax and the province is more than happy to have tax accelerate because that means they might get the HST and more things are subject to HST than with the provincial sales tax.

Here’s What Happens

bc hst repeal

Either the day the payment is made or the day the payment is due, whichever comes first, that’s the day you look at on the calendar.

When the cheque is physically handed over is the date of payment but when it becomes due is a little bit more involved due to anti-avoidance rules and every anti-avoidance rule accelerates the due date.

As a businessperson, you need to review all these rules and constantly asking yourself what day things are happening on. You just look for what was the earliest day and if that day was March 31 it is prior the BC HST repeal; April 1st or later results in two-tax. When payment becomes due is the earliest day the supplier first issues an invoice for or the date on the invoice, if the invoice is backdated. So the date it’s physically issued for or the date on it, if it’s backdated.

But Can’t I Just Do It This Way…

There are a lot of coffee shop talk saying that all you have to do is not issue the invoice until April and then you only have to collect the GST at 5% and not necessarily the PST. Depending on what the service is, that’s not really true.

If the supplier has unduly delayed issuing the invoice and/or another earlier day is the day that the recipient is required to pay pursuant to an agreement. So again, you’ll need to look through the laundry list: what is the earliest of all these days?

If it’s March 31st or prior then it is 12% HST. April 1 or later and then it is subject to 5% GST and maybe 7% PST.

bc hst repeal

Make sure you are charging the correct tax on the right days during this transitional process for the BC HST repeal.

Much of the effort for business owners will be running through that short list of rules for the BC HST repeal. I will say that it is certainly much easier than going back months later and trying to figure out when services were provided or when goods were provided and things like that.

The Complete BC HST Article Series For Business Owners

I’m very grateful to Mike Boven from BDO Canada for lending his expertise on commodity tax for this article series on the BC HST repeal. Be sure to check out the rest of the articles down below to get a better look at the full picture of what’s happening before April 1.

  1. BC HST Repeal: How We Got Here & Where We Are Headed
  2. What Every Retailer Needs To Know About The BC HST Repeal
  3. Details For BC Business Owners Registering For PST
  4. BC Businesses Should Be Buying Equipment Before April 1st
  5. What The Average Business Needs To Know About The BC HST Repeal
  6. What The Construction Industry Needs To Know About The BC HST Repeal

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