Food manufacturers and retailers will need to take action to prepare for Ontario and British Columbia to harmonize their provincial sales taxes (PST) with the federal GST on July 1, 2010. Issues to consider include the tax status of products, pricing in catalogues, systems changes and expansion plans, among others.
Food manufacturers and retailers may need to review their product lists to determine whether the tax status of their products will change as the new harmonized sales tax (HST) will apply to most GST-taxable goods and services provided in Ontario and B.C.
As a result, some products (e.g., vitamins and certain dietary supplements) that are currently PST-exempt in Ontario and B.C. will likely be subject to the 13% HST in Ontario and 12% HST in B.C.
The new HST will make it more important than ever to ensure the correct tax status of products since it will increase the cost of misclassified items from 5% GST to 13% HST in Ontario and 12% HST in B.C. Food companies can start now by reviewing the current GST status of their products for correctness.
Other issues to consider include:
• Pricing in annual catalogues and flyers straddling the July 1, 2010 implementation date should include adequate caveats to allow businesses to charge their customers either the Ontario or B.C. PST and GST or HST as applicable, depending on when the sale takes place.
• Systems changes will be required to deal with returns, bad debts, and other taxable price adjustments that straddle the implementation date.
• Companies who are contemplating significant construction projects that will straddle the implementation date, such as building new stores, may want to keep in mind when negotiating their construction contracts that the contractor may realize tax savings on materials and equipment purchased or leased after HST implementation.
HST – Better for business
The new HST is generally good news for Ontario and B.C. businesses selling taxable or zero-rated goods. They should generally be able to claim input tax credits to recover the HST paid on their purchases, which will eliminate unrecoverable PST currently embedded in their costs.
However, large businesses (with more than $10 million in annual taxable sales) will be restricted from claiming input tax credits for the provincial component of the HST for certain purchases. Restricted expenses will include energy (except when used to produce goods for sale), telecommunications services (other than Internet or toll-free numbers), certain vehicles and fuel, and food, beverages and entertainment.
More good news for businesses is that the harmonized tax will ease their administrative burden – no more purchase exemption certificates, one GST/HST registration number, one tax rate for sales within the province (subject to a few exceptions), and no requirement to self-assess tax on non-custom software, printed matter, samples, gifts or goods taken for own use. Finally, businesses will only have to deal with one sales tax return and one sales tax audit instead of two.
– Florence Schwartz, KPMG
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