Businesses that sell their goods or services often misinterpret the law and either fail to collect tax or provide appropriate exemption when dealing with Provincial or Federal Governments. The introduction of HST in Ontario and the introduction of new "place of supply" rules changes considerably the application of taxes in many circumstances.
Sales to the Federal Government remain unchanged and are generally subject to GST/HST; however as explained further in this column, the new changes in "Place of supply" rules may have some impact on whether HST at its various rates or GSTat 5% should be collected.
Sales to Ontario Government:
Under the sales tax harmonization agreement between the Government of Ontario and the Government of Canada, the Canada-Ontario Comprehensive Integrated Tax Coordination Agreement (CITCA), Ontario has agreed that, effective July 1, 2010, all Ontario government ministries, agencies, boards, commissions and Crown corporations ("Ontario government entities") will pay Goods and Services Tax (GST) / Harmonized Sales Tax (HST) on their purchases of taxable property and services. Property could be goods, real property or intangible personal property such as trademarks, rights to use a patent, and digitized products downloaded from the Internet.
Currently, only commercial Ontario Crown Corporations are required to pay GST; accordingly since sales to all Ontario government entities become taxable on July 1, 2010, anyone, an this includes many Ottawa or Gatineau businesses must ensure that they collect HST on any amount that becomes payable (or is paid without being due) as of July 1 regardless of when the contract was signed; moreover businesses are instructed not to accept any exemption certificates provided by such Ontario government entities on or after July 1, 2010. Failure to collect the HST will result in interest and/or penalties!
Accordingly, anyone dealing with the Ontario must immediately take appropriate measures and ensure that HST is collected on all sales to the Ontario Government as of July 1, 2010; it is important to note that while the General Transitional Rules (see our previous columns on the subject) took effect on May 1 in many cases, it is not so with respect to most Ontario Government entities; indeed an exemption applies in their case and HST only becomes applicable on July 1, for entities previously exempt from GST ( currently taxable Ontario commercial Crown Corporations are however subject to the General Transition Rules and the May1, date may therefore apply.)
Place of supply changes.
As mentioned in a previous column, place of supply rules have changed, especially where services are concerned. Emphasis usually contingent on where the contract was signed is now more on the location where the service are rendered. For example, a company may have contracted with an Ontario government department to clean their offices, some of which may be located outside Ontario. While this was an exempt contract under current rules it becomes taxable on July 1, with HST being collected at 13%, 12% or 15% ( Nova Scotia's new HST rate as of July 1) or GST at 5% depending on the address where the service is rendered.
This would be a rare occurrence for Ontario departments but businesses must be careful to appropriate determine the rate of GST/HST/QST they must collect when dealing with the Federal Government who enters into contracts regarding locations located across the country. It should be remembered that changes concerning Ontario government office do not apply to most Quebec Government entities which remain exempt from application of the GST/HST.
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