Canada: HST: BC and Ontario Moving To Implementation

In 2009, Ontario and British Columbia announced that their provincial sales tax systems would be harmonized with the federal GST effective July 1, 2010. The harmonized sales tax (HST) will consist of a five per cent federal component and a provincial component of seven per cent in British Columbia and eight per cent in Ontario (for a combined HST rate of 12 per cent and 13 per cent, respectively). The HST will be levied under Part IX of the Excise Tax Act (ETA) and will generally apply to the same tax base and be subject to the same rules as the GST, although there will be some "province-specific" rules in British Columbia and Ontario such as point-of-sale rebates for a limited range of consumer products and special rules restricting input tax credits for the provincial component on certain expenses incurred by large businesses. British Columbia and Ontario follow Newfoundland, Nova Scotia and New Brunswick, all of which harmonized their sales tax systems with the GST on April 1, 2007.

The federal government has passed legislation to amend the ETA to include Ontario and British Columbia as "participating" HST provinces. The amending legislation provides that many of the specific rules that will govern the application of the HST in the two provinces will be prescribed by regulation. However, those regulations have yet to be released. Ontario has also passed amending legislation to wind down the existing provincial sales tax as of July 1, 2010. British Columbia has not released its amending legislation at the time this article was written.

HST Issues for Businesses

1. Transitional Rules

The federal, Ontario and British Columbia governments have issued information notices describing the HST transitional rules that will apply to various types of transactions that occur in Ontario and British Columbia (including complex transitional rules for sales of residential real property). Under the transitional rules, payments made on or after May 1, 2010 will generally be subject to GST to the extent they are for supplies of property or services made on or after July 1, 2010. Sales of goods will be subject to HST where payment is made after April 30, 2010 and where the goods are delivered and ownership is transferred after June 30, 2010. For services, HST will generally apply to payments made after April 30, 2010 for services performed after June 30, 2010. Supplies of intangible property such as contractual rights and intellectual property will be generally subject to HST when payment is made or becomes due after June 30, 2010. Special transitional rules will apply to specific types of services and intangibles. Sales of non-residential real property in Ontario and British Columbia will be subject to HST where both ownership and possession is transferred after June 30, 2010. Leases of commercial property will be subject to HST where a lease interval (i.e., rental period) begins on or after July 1, 2010. However, only the five per cent federal component will apply where the lease interval begins before July 2010 and ends before July 31, 2010.

2. Collecting GST/HST

Businesses that make taxable supplies that are not zero-rated in both HST and non-HST provinces will have to determine whether they are required to collect tax at the five per cent rate or the 12 per cent or 13 per cent HST rate. Determining the correct rate of tax will depend on the application of the place of supply rules for participating provinces set out in Schedule IX to the ETA. These rules will pose a significant degree of complexity for businesses. Failure to collect the provincial portion of the HST where applicable will create exposure to a potential assessment for the uncollected tax plus non-deductible interest.

3. Restricted Input Tax Credits

Both Ontario and British Columbia will impose restrictions on the ability of large businesses (those with annual taxable sales of over $10,000,000) and financial institutions to claim input tax credits for the provincial portion of the HST on certain expenses. The restrictions will apply to expenses for most types of energy, telecommunication services, road vehicles under 3,000 kilograms, and meal and entertainment expenses that are currently subject to the 50 per cent input tax credit and income tax deduction limits. The restrictions on recovering the provincial portion of the HST will be in place for an initial period of five years followed by a three-year phase-out period. The restrictions are similar to those that have applied to large businesses under the Québec sales tax for a number of years.

On February 1, 2010, Ontario released an information notice discussing the rules for restricted input tax credits (RITCs). British Columbia has not released a comparable notice to date. The Ontario notice states that the restrictions will not apply to the specified categories of expenses where the property or service is purchased for re-supply, e.g., by sale or lease, or to energy used to produce goods for sale or used in qualifying scientific research and experimental development activities or farming. The information provided by British Columbia to date only indicates that the restrictions in that province will not apply to energy used by farms or to produce goods for sale.

The Ontario notice states that Ontario will use a recapture method for RITCs rather than denying the credit, which is the system used in Québec. This will impose special GST accounting obligations on businesses subject to the RITC rules. Large businesses subject to the rules will claim input tax credits for the total HST paid or payable in their GST return, and deduct the RITC amount in the same return. In addition, businesses subject to the rules will have to self-assess the RITC amount on the specified services and property acquired outside Ontario for use in Ontario. Businesses will be permitted to use allocation proxies to determine the RITC amount for energy used in both excluded and restricted uses (e.g., producing goods and space heating) and for telecommunication expenses that include both specified services and other goods and services not subject to the RITC rules. Businesses will also be able to make an election to use an estimation, instalment and reconciliation approach to account for RITCs. The election will have to be filed before July 1, 2010, and will apply for at least one year. On January 4, 2010, the Canada Revenue Agency announced that all businesses subject to the RITC rules will be required to file their GST/HST returns electronically beginning July 1, 2010.

McCarthy Tétrault Notes

The full implementation of HST is now just over four months away, and the transitional rules already apply to taxable transactions that straddle the implementation date. Businesses will have to identify how the introduction of the HST in Ontario and British Columbia will impact their operations. Businesses subject to the RITC rules will also have to address the impact of those rules and consider issues such as whether the use of the allocation proxies will be advantageous.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.