Harmonized Sales Tax - Technical Paper: 12
Generally, the operating rules and administrative policies applicable to the GST will apply equally under the HST, with appropriate modifications to reflect the HST rate of 15 per cent. This section highlights the application of the rules in specific areas.
Generally, the application of HST to employee and shareholder benefits will be the same as under the current rules.
The application of HST to employee benefits will depend on the province in which the employee last reported for work in relation to a particular employer before the end of the taxation year of the employee. Where the place at which employee last reported for work in relation to a particular employer is located in a participating province, HST will apply to the employee benefit.
For shareholder benefits, the determining factor will be where the shareholder resides at the end of the taxation year of the shareholder. Accordingly, HST will apply to benefits provided to a shareholder whose place of residence is located in a participating province.
Under the current rules, 5 per cent of an automobile operating expense benefit is regarded as the amount of tax collectible by the employer or corporation. Where the benefit is any other type of taxable benefit, including a standby charge, 6/106ths of the benefit is regarded as the amount of tax collectible by the employer or corporation. Under the HST, the amounts deemed to be tax collectible by the employer or corporation will be 11 per cent in the case of automobile operating expenses and 14/114ths in the case of other benefits, including standby charges.
A special transitional rule will be provided for taxable benefits conferred during 1997. This special rule will apply to taxable benefits conferred on employees whose place of work or shareholders whose place of residence is located in a participating province on December 31, 1997. For the 1997 taxation year of the employee or the shareholder, the provincial portion of the HST on taxable benefits will be 75 per cent of the tax that would otherwise have been calculated on such benefits for an entire year. Thus, the combined tax rate of 9.5 per cent in the case of automobile operating expense benefits, or the tax fraction of 12/112, in the case of other taxable benefits including standby charges, will apply. This reflects the fact that the HST will be in effect for only three-quarters of the 1997 calendar year.
For the most part, the criteria for claiming input tax credits or rebates of HST in respect of allowances and reimbursements paid to employees, partners or volunteers (of a charity) will be the same as under the GST. In the case of allowances, the rules will require that, for claims in respect of the provincial portion of the tax, the allowance must be for supplies all or substantially all of which are taxable (other than zero-rated) at the HST rate or, in the case of a motor vehicle allowance, the use of the motor vehicle is in participating provinces.
The amount of the input tax credit or rebate in respect of a reimbursement will depend on the actual tax paid for expenses reimbursed. Therefore, the place of work or place of residence of the employee, partner or volunteer will not be a factor when claiming input tax credits or rebates in respect of reimbursements.
Participating provinces and the federal government have agreed to set up a reciprocal rebate mechanism for HST purposes. Under this system, these governments (including all departments and certain government entities) will pay HST on their purchases. Generally, where those departments or entities are agents of the Crown, any tax paid will be rebated.
This mechanism will simplify tax compliance for vendors as they will no longer have to deal with the complexity associated with making sales to tax-exempt agencies of participating governments.
Under the Indian Act, the personal property of an Indian or an Indian band situated on a reserve is exempt from taxation. Consistent with this exemption, GST does not apply to on-reserve purchases of goods by Indians and Indian bands, or to off-reserve purchases by Indians and Indian bands of goods delivered to the reserve by vendors or their agents. In addition, the GST does not apply to services purchased on reserves by Indians where the benefit is realized totally on a reserve.
The HST will operate in the same manner as the GST and, as such, will be consistent with the provisions of the Indian Act.
For the purposes of the HST, the rules governing the tax treatment of coupons and manufacturers' rebates will be the same as those applicable under the GST. To facilitate the introduction of tax-inclusive pricing, additional flexibility will be introduced for percentage discount coupons that are issued by a retailer.
Currently, retailers issuing a percentage discount coupon are required to treat this type of coupon as non-redeemable, that is, one that reduces the price payable by the recipient before calculating applicable taxes. Retailers will now have the option of treating this type of coupon in the same manner as a fixed dollar amount retailer coupon, i.e. retailers will now have the option of treating their percentage discount coupons as reducing the total amount payable including taxes. A retailer using such a coupon will be eligible to claim an input tax credit equal to the tax fraction of the coupon value.
Under the GST, several streamlined accounting methods are available to simplify the way eligible small businesses, public service bodies and charities may calculate their GST net tax liability.
These methods include:
These methods will be available under the HST, although some modifications to the rules will be necessary to address the fact that, in certain circumstances, some sales or purchases may have been subject to tax at the HST rate of 15 per cent while others may have been taxed at the 7-per-cent GST rate.
In particular, any registrant using the Quick Method for Small Businesses or the Special Quick Method for Public Service Bodies will be required to account for tax separately in respect of their sales made in participating provinces and those made in non-participating provinces, and will be required to remit a portion of the taxes charged based on two different rates.
Similarly, any registrant using the Streamlined Input Tax Credit Method will be required to account for tax separately in respect of their purchases and claim input tax credits at the two different rates.
In Newfoundland and New Brunswick, different tax remittance rates will have to be determined for certain registrants using the Special Quick Method for Public Service Bodies.
These new rates will account for the fact that:
Registrants who use the Quick Method for Businesses, the Streamlined Accounting Method for Charities or the Special Quick Method for Public Service Bodies are subject to the self-assessment rules for property or services brought into a participating province. The self-assessment rules are outlined in Chapter 5. However, they will not be able to avail themselves of the special exclusion from self-assessment for property or services for consumption, use or supply exclusively in the course of commercial activities. The other exclusions from self-assessment will apply.
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