Canada: Ontario And British Columbia Announce Transitional Rules For Harmonized Sales Tax

Last Updated: October 20 2009
Article by Neil Bass, Wendy A. Brousseau, Chia-yi Chua and Angelo Gentile


Both Ontario and British Columbia (B.C.) have announced that their Provincial Sales Taxes (PST) will end on July 1, 2010 and be replaced by a Harmonized Sales Tax (HST). In both Provinces the HST will be imposed under the Excise Tax Act (Canada) (the "ETA") and administered by the Canada Revenue Agency. On October 14, 2009, both Provinces released Information Notices (the Notices) describing their proposed transitional rules with respect to implementation of the HST (the Proposed Rules). Both sets of Proposed Rules are broadly similar.

The Proposed Rules will apply to transactions that, for purposes of the ETA, are considered to be taxable supplies made in either Province.

B.C.'s Proposed Rules do not discuss residential real estate, which will be covered by future announcements. Ontario's rules for new residential housing were the subject of prior announcements, the first being in June 2009.


Effective July 1, 2010, Ontario's retail sales tax (RST) and B.C.'s social services tax (SST) will, subject to legislative approval, be replaced with the HST. In Ontario, the GST/HST will have a combined tax rate of 13% – combining the existing 5% GST and an 8% Ontario component. In B.C., the GST/HST will have a combined rate of 12% – combining the existing 5% GST and a 7% B.C. component. Subject to certain exceptions, the HST will generally apply to the same goods and services that are currently subject to GST. The Proposed Rules will apply to taxable supplies made in the Provinces to determine which tax, the existing PST or the provincial component of the HST, will apply to transactions that straddle July 1, 2010. The Notices also describe proposed provincial measures to wind-down the existing PST regime in each Province.

The proposed transitional rules will apply to taxable supplies made in the provinces to determine which tax, the existing provincial sales tax or the provincial component of the HST, will apply to transactions that straddle the July 1, 2010 implementation date.

Key Dates

The Proposed Rules identify the following key dates:

July 1, 2010: the Implementation Date for the HST

October 14, 2009: the release date of the Notices or the "Announcement Date"

The HST will not apply to consideration due or paid on or before October 14, 2009. However, certain businesses and public service bodies may be required to self-assess the HST on consideration due or paid from October 14, 2009 to April 30, 2010 for property and services provided on or after July 1, 2010.

May 1, 2010: the "Specified Pre-Implementation Date"

Generally, the Proposed Rules ensure that the HST will apply to any consideration due or paid on or after May 1, 2010 for property or services provided on or after July 1, 2010.

October 31, 2010: Due date for any outstanding PST

To facilitate the wind-down of the, PST regimes, the Notices provide that any applicable PST not otherwise payable on or before October 31, 2010 will become payable on that date.

As the HST will be imposed under the ETA, the definitions and concepts in the ETA will apply to the Proposed Rules, including the timing of liability for tax. As such, in applying the Rules by reference to the key dates, it is important to remember that tax is payable under the ETA on the earlier of the day consideration is paid and the day it becomes due. Tax liability is thus, generally triggered on the earlier of the date an invoice is issued, the date that consideration is due under a written agreement and the date payment is made.

Transitional Rules by Category

The Proposed Rules are specific to the type of supply. A brief overview of the Proposed Rules is set out below. The descriptions of Proposed Rules are of a general nature and do not address all situations. For more information on the Proposed Rules and how they may impact your business, please contact a member of our Sales and Commodity Tax Group.

Sales of Tangible Personal Property

The HST will generally apply to a sale of goods where both delivery of the goods to the recipient and transfer of ownership occurs on or after July 1, 2010. A specific exception applies to newspaper, magazine and periodical subscriptions. Subscriptions paid for before July 1, 2010 will not be subject to HST.

*See under heading "HST Self-Assessment" for potential self-assessment obligations on consideration due or paid after October 14, 2009 and before May 1, 2010.


The HST will generally apply to a supply of a service to the extent that the service is performed on or after July 1, 2010. The HST will generally not apply, however, if all or substantially all (generally 90 per cent or more) of the service is performed before July 2010. Special Proposed Rules also exist for pre-paid funeral and cemetery services, passenger transportation services and freight transportation services.

For purposes of the Proposed Rules, supplies of admissions and memberships will be deemed to be supplies of services, and not supplies of intangible personal property.

*See under heading "HST Self-Assessment" for potential self-assessment obligations on consideration due or paid after October 14, 2009 and before May 1, 2010.

Leases and licences (including commercial parking passes)

Generally, the HST will apply to a supply of property by way of lease, licence or similar arrangement for the part of a lease interval that occurs on or after July 1, 2010. However, the HST will not apply to a supply of property by way of lease, licence or similar arrangement if the lease interval begins before July 2010 and ends before July 31, 2010. For example, a monthly car lease payment for a lease interval from June 15, 2010 to July 15, 2010 will not be subject to HST, regardless of when the payment is made.

HST will otherwise apply to payments made after May 1, 2010 for periods attributable to after July 1, 2010.

*See under heading "HST Self-Assessment" for potential self-assessment obligations on consideration due or paid after October 14, 2009 and before May 1, 2010.

HST Self-Assessment*

Persons who are "non-consumers" (e.g., businesses and public service bodies) may be required to self-assess the HST on purchases of tangible personal property, services or acquisitions of property by way of lease, licence or similar arrangement where the consideration becomes due or is paid between October 14, 2009 and April 30, 2010. The self-assessment obligations will generally apply only to the following:

  • non-consumers acquiring goods, services or property for consumption, use or supply otherwise than exclusively in the course of their commercial activities (e.g., a financial institution that is acquiring a supply to make GST/HST-exempt supplies);
  • non-consumers acquiring goods, services or property for consumption, use or supply exclusively in the course of their commercial activities but in circumstances where the goods or services are subject to an input tax credit restriction or recapture (e.g., electricity or telecommunication services that will be subject to the proposed input tax credit restriction for large businesses);
  • non-consumers that use simplified procedures available under the ETA for calculating their net tax (e.g., certain charities, public service bodies, and small businesses); and
  • selected listed financial institutions which use a special attribution method in determining their net tax.

Non-consumers who are required to self-assess will be required to account for the HST either: (i) in their GST/HST return for the reporting period that includes July 1, 2010, if the due date for the return is due before November 2010 or, (ii) in any other case, in prescribed form before November 2010.

Sales of Intangible Personal Property

The HST will generally apply to consideration due or paid on or after July 1, 2010 for a supply of intangible personal property (e.g., intellectual property or goodwill) by way of sale. In addition, special rules apply to supplies of passenger transportation passes and lifetime memberships. Other memberships and supplies of admissions will be deemed to be services for the purposes of the Proposed Rules, subject to appropriate modification.

Real property (other than residential housing)

The HST will generally apply to a supply of real property (other than residential housing) by way of sale in Ontario or B.C. if both ownership and possession of the property are transferred to the purchaser on or after July 1, 2010.

Real property (residential housing)

For information about the transitional rules for new residential housing in Ontario, see Information Notice No. 2, Helping Homebuyers and the Housing Industry with an Enhanced New Housing Rebate, a New Rental Housing Rebate and Transitional Rules, dated June 18, 2009 and GST/HST Notice 244 Harmonization of the Ontario Retail Sales Tax with the Goods and Services Tax - Questions and Answers on Housing Rebates, Transitional Rules for Housing and Other Real Property Situated in Ontario, September 2009. Generally, new residential homes and condominiums sales in Ontario are relieved from the application of HST if the sales agreement was entered into before June 18, 2009. B.C.'s Proposed Rules with respect to new home residential construction and sales have not yet been released.

Transitional Inventory Rebate for Residential Real Property Contracts

Both Ontario and B.C. are proposing rebates for PST imbedded in construction materials that are used in residential real property contracts where the HST applies, subject to certain conditions. These rebates will be administered by the Provinces and the application for such rebates will be required to be filed by December 31, 2010.

Special Cases

Finally, there are specific Proposed Rules for direct sellers, continuous supplies (e.g., oil and gas, electricity, etc.), budget payment arrangements, combined supplies, progress payments/holdbacks, imported goods and imported taxable supplies.

Wind-Down of PST

The Notices also describe the wind-down of the PST regimes in Ontario and B.C. Generally, where the application of the Proposed Rules results in HST not being payable, the wind-dwon provisions provide that PST will apply (to the extent such consideration is subject to PST in the first place).

Final PST returns will generally be required to be filed by July 23, 2010. As indicated above, to facilitate the wind-down of the PST regimes, any applicable PST not otherwise payable on or before October 31, 2010 will become payable on that date. Where PST is collected or becomes payable after July 23, 2010, the vendor will be required to account for the PST in a supplemental return, which will be required to be filed by November 23, 2010.


The Notices warn that the existing anti-avoidance rules in the ETA will apply with respect to the Proposed Rules and that additional anti-avoidance rules may be implemented "to maintain the integrity of the GST/HST and RST during the period of transition."

Caution: Notices Provide only General Description of Proposed Rules

While the information in the Notices will no doubt be of assistance to businesses in planning for the implementation of HST, the Proposed Rules are not law. In fact, no draft legislation has been released relating to the Proposed Rules. As well, the Notices, being general in nature, do contain gaps, and understandably, do not address all types of transactions that may straddle the Implementation Date. Readers are cautioned that the law, as ultimately enacted, may differ from the Proposed Rules. This may be particularly so if, after consultation with industry, significant issues are identified with the Proposed Rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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