The Maritime Provinces will soon have a uniform HST rate of 15%. On April 19, 2016, the Prince Edward Island government announced its intention to increase the HST rate to 15% effective October 1, 2016. In certain circumstances, transitional rules are needed to determine which tax rate applies to a particular transaction, the old 14% HST or the new 15% HST.
Suppliers will generally be required to charge 15% HST on consideration that becomes due without having been paid, or is paid without having become due, on or after October 1, 2016. For this purpose, consideration for a supply becomes due on the earliest of:
- The day the supplier issues the invoice.
- The date on the invoice.
- The day the supplier would have, but for an undue delay, issued the invoice.
- The day the purchaser is required to pay pursuant to a written agreement.
The general rule is that HST rate of 15% would apply to any consideration that becomes due or is paid on or after October 1, 2016. This general rule applies when it comes to the supply of tangible personal property (i.e. sale of goods), supply of services, supplies by way of lease or licences, as well as the supply of intangible personal property (i.e. intellectual property, contractual rights, memberships, admissions, etc.)
Supply of Tangible Personal Property (Sale of goods)
Example 1: In September 2016, a person fully pays for an annual magazine subscription. Issues of the magazine are to be delivered each month for twelve months starting in October 2016. The HST rate of 14% would apply to the payment for the magazine subscription.
Example 2: In October 2016, a supplier first issues an invoice for an unpaid delivery of goods that was ordered by and delivered to a person in September 2016. The HST rate of 15% would apply to the invoiced amount.
Supply of Services
Example 3: In October 2016, a supplier first issues an invoice for unpaid services, which are performed between September 20, 2016 and October 8, 2016. The HST rate of 15% would apply to the invoiced amount.
Example 4: In September 2016, a person pays for round-trip air travel from Charlottetown to Ottawa, departing on October 3, 2016 and returning on October 9, 2016. The HST rate of 14% would apply to the payment for the round-trip air travel.
Leases and Licences
Example 5: On September 10, 2016, a person makes a car lease payment, as required under the written lease agreement, for a lease interval that runs from September 10, 2016 to October 9, 2016. The HST rate of 14% would apply to the lease payment. The HST rate of 15% would apply to the lease payment that is required to be made on October 10, 2016, unless the lease payment is made before October 1, 2016.
Intangible Personal Property
Example 6: In August 2016, a vendor sells tickets to a concert that will take place in January 2017. The HST rate of 14% would apply to the payment for the tickets.
Special rules apply to the supply of real property by way of sale. In these cases, the rate of 15% would apply to supplies if both ownership and possession of the property are transferred on or after October 1, 2016. Conversely, the rate of 14% would apply to the sale if either ownership or possession of the property is transferred before October 1, 2016.
It is important to distinguish between the supply or real property and the supply of construction services. Generally, if a person enters into an agreement to have a new housing constructed on land that the person owns or purchases separately, the supply would be considered a supply of construction services and the transitional rules for services, described earlier, would apply. The transitional rules for sales of real property would however apply in respect to the purchase of the land.
There are also special grand parenting rules for sales by builders (a term defined in the Excise Tax Act) if the agreement was entered into on or before June 16, 2016, in addition to new disclosure and reporting requirements.
Real property transactions are often significant in both value and complexity; therefore, it may be wise to consult a tax professional to ensure compliance with the rules and regulations.
Returns and Exchanges
The following rules would generally apply if a person purchases property before October 1, 2016 that is subject to the HST rate of 14% and returns it on or after October 1, 2016:
- If the property is returned and a refund of all or part of the consideration for the property is given, the HST at a rate of 14% may be refunded in respect of the consideration or part thereof.
- If a straight exchange is made (i.e. a swap of similar or like items) resulting in neither a refund nor an additional payment, HST would neither be refundable on the exchanged property nor payable on the replacement property.
- In the case of any other exchange, the HST at a rate of 14% may be refunded in respect of the consideration or part thereof for the exchanged property and the HST at a rate of 15% would be payable on the replacement property.
Example 7: In October 2016, a person returns a golf club purchased in September 2016 for $200. The vendor may refund the HST at the rate of 14% on the $200 price of the golf club.
Example 8: In October 2016, a person exchanges a shirt purchased in September 2016 for $20 for a different sized shirt also costing $20. The vendor does not process the transaction as a return and new purchase. In this situation, HST would neither be refundable on the exchanged property nor payable on the replacement property.
Example 9: In October 2016, a person returns a slow cooker purchased in June 2016 for $100 and, at the same time, purchases a rice cooker that costs $120. The vendor may refund the HST at the rate of 14% on the $100 price of the slow cooker and would be required to charge and collect the HST at the rate of 15% on the $120 price of the rice cooker.
Various other types of entities and transactions may be affected in different ways by the upcoming HST rate increase. The transitional rules also provide details related to:
- Property and services brought from another province in into Prince Edward Island
- Imported goods
- Imported taxable supplies of intangible personal property and services
- Financial institutions
- Pension plans
- Taxable benefits
- Streamlined accounting methods and the new rates.
Your MRSB sales tax advisor can help you determine the effects of the HST rate changes to you and your business.
There is ample opportunity in today’s society to give back to organizations in need of monetary donations. Most people can list off several organizations worthy of being the recipient of their hard earned money. Making the decision to donate and who will get your money is the first step in giving back.
But it’s also important to consider your own situation so that you maximize your donation and ensure you get the best tax credit available. In this blog post, our Tax Manager, Mary Ann Donahoe looks at the important question - which is the best option, donating directly from your corporation or donating personally?
Well the answer isn’t simple. There are a number of things to consider:
For the corporation
You need to determine the tax rate of the corporation, whether it is taxed at the small business corporation rates, the general income rates or taxes on investment income rates. Also the corporation must be taxable to benefit from the deduction. This will determine the tax saving for your corporation.
For the personal donation
If you are donating personally you will need to access funds from your company. You need to either take a wage or a dividend to draw the money out of the company and take the tax on that income into consideration when calculating the best option. So which is a better option - a wage or a dividend? Well, that depends!
What is your personal tax rate? What tax bracket are you in? That will determine how much tax you will pay on the wage or dividend you take from the company.
One thing we know is in PEI the tax saving on donations in excess of $200 is 45.7% of the donation.
The next step is to do the math. Look at the potential tax saving in your particular company and compare that to the net tax saving personally after taking into consideration the extra income (wage or dividend) you need to make the personal donation.
In general terms, if you are in a lower tax bracket personally it is usually more beneficial to make the donation personally. The higher your income the more likely the benefit will revert to a company donation.
For example, using a Canadian Controlled Private Corporation in PEI with income eligible for the Small Business Deduction and comparing the savings by the company verses an individual in PEI whose income is in the “middle” tax bracket (45-63K) or the “highest” tax bracket (over 200K).
With the “middle” income calculation, it is more beneficial to take a wage from the company and make the donation personally. There was an additional 11.4% tax saving compared to a corporate donation.
With the “high” income calculation, it was better to make the donation in the company with an additional tax saving of 5.67% compared to taking a wage from the Company and making the donation personally.
As you can see, donating from your personal account versus your corporate account can have different implications. It is important that you are informed and have the best strategy in place so that you are maximizing your money.
We recommend that you consult your tax adviser to obtain advice that is specific to your situation.