Effective July 1, 2010, businesses in Ontario and British Columbia will now have to charge HST on sales to their customers. Will this be easier or more difficult for business owners? In my opinion, it will probably simplify the rules for many businesses and reduce the inconsistencies in PST interpretations that many businesses have been making.
For example, if a business sells a product which will be attached to the wall in a hospital, the hospital is PST exempt and PST is not required to be collected by the business. If a new hospital is being built and the same business sells that same product to the contractor who is building the hospital, PST is an issue. Rulings tells you that you must charge PST, auditors in the field assess some businesses PST and not others. Even if you want to comply with the rules, the interpretation of the rules is being applied inconsistently. As a result, if you bid on a $100,000 contract and one person factors PST into their costs and the other does not, guess who will win that job. With the implementation of HST, everyone will be playing with the same set of rules and hopefully they will be applied more consistently.
Some business owners may have to pay PST on products and definitely on items used for their own consumption such as furniture. Under HST, they will not have to pay the PST therefore the product will cost the business 8% less. If the supplier had to pay PST for products which they sold to the ultimate consumer, the business owner’s cost will go down by 8%. The question will be if business owners costs decrease after July 1, will the price of their goods go down. Time will tell but most people I talk to do not believe that prices will drop. But that again will be dependent on the amount of competition out there.
As a business owner, you now have to plan to change your invoicing, your accounting to factor in the new rules effective July 1. If you are a retailer and charging PST and GST on all items, there will not be an impact on your clients. However, many items which were PST exempt may now be subject to HST therefore all retailers will need to talk to their accountant to find out how the new rules impact the business owner.
If you are going to buy a product on July 1 or June 30, business owners will be better off to defer the purchase by a day or even defer their purchases in June to save the additional 8%. This may not sound like much but even purchasing office supplies includes PST. Effective July 1, you don’t have to pay the PST on those supplies. You can recover the full HST. As a result, many businesses may not be as busy next June but July could be a banner month. Make sure that you can handle the change in staffing needs to anticipate the new rules. Everyone is looking to improve profits and if all it takes is to defer the purchase of something by a day or a week or a month to save 8%, many businesses will do that and run down inventories to add more to their bottom line.
Remember, you do not have to do anything different to save the 8% other than watching the timing of your purchases. That could be the easiest 8% profit that you will make.