Ontario Harmonized Sales Tax (OHST) – Is it going to Cost Your Organization? 

Maybe yes, maybe no but on balance it will probably cost you. Unfortunately the harmonization of the GST and PST is going to be messy.  Some organizations may end up with an additional tax hit while others may be indifferent and yet others may end up with somewhat lower overall costs.  The change starts July 1, 2010. 

The key considerations will be: 

1.        What your organization’s current rebate factor[1] is; in short, the higher your current GST rebate factor is the greater the likelihood that you will breakeven or have only a small increase in overall costs.  If your organization is not currently eligible for any GST rebate (municipality, charity or qualifying NPO) then your overall taxable costs will increase by 2 to 6%.  

2.        What percentage of your current GST taxable costs are already subject to the Ontario Sales Tax; in short, if most of your current GST taxable costs are already subject to the Ontario PST then the impact will be small.  However, if less than 50% of your GST taxable costs are currently subject to PST your taxable costs will increase. 

Please refer to the “Un-recovered Sales Tax Tables” at the end of this document which set out some detailed rebate calculations which reflect: (1) assumed current rebate factors (i.e. 100%, 50%, 25% and 0%) and (2) assumption about the level of GST taxable costs that are currently subject to the PST.  In summary:- 

·          If your current GST rebate factor is 75% or above and 30% or less of your current GST costs are subject to the PST you can expect an increase in such costs any where from 0.5% to 2%. 

·          If your current GST rebate factor is between 50% to 25% and 30% or less your current GST costs are subject to the PST you can expect an increase in such costs any where from  2.4% to 4.8%. 

·          If your current rebate factor is 25% or below and 30% or less of your current GST costs are subject to the PST you can expect an increase in such costs any where from 4% to 6%. 

Another quick way to assess the effect on your organization is as follows (see Table of Cost Categories below):- 

·          The impact on costs already subject to PST (materials, telecommunications, and taxable labour) will not increase and, in fact, will probably fall in value where the OHST rebate is available. 

·          The biggest impact will be on those costs not currently subject to PST (utilities such as gas and electricity, most labour services for professional fees, maintenance and administrative contracts).

Table of Cost Categories to Focus On 

The following Table sets out in bold type those costs which will be directly impacted (increased) as a result of the harmonization of the GST and PST.

How to Calculate Your Rebate Factor

If your organization is eligible for a GST Rebate either as a charity, qualifying non-profit organization or NPO with a municipal designation for housing then you will be able to claim a rebate for a portion of the Ontario portion of the harmonized sales tax.  The following Table sets out the current GST and proposed PST rebate rates. 

The calculation of your rebate factor will depend on whether your organization is entitled to a municipal designation rebate, a qualifying non-profit organization rebate, charity rebate or combination. 

The following calculation reflects the situation where the organization is eligible for both the Qualifying NPO 50% rebate and the Municipal Designation rebate on its RGI units.  

 Bookkeeping Issues 

Your organization probably already has in place a methodology for tracking and recording GST rebates so the jump required to pick up the OHST rebate portion should not be a major leap. 

It is our recommendation that effective with the introduction of the Ontario Harmonized Sales Tax a process be used that separates the amount of GST and OHST that is eligible for rebate so that it can be posted directly to a rebate receivable account and the non-recoverable portion is allocated to the related expense account. 

One way to do this is to compute the organizations overall rebate factor as described above and apply this factor to the combined GST and OHST amount to determine the portion of tax properly allocated to the rebate receivable account. 

It should be perfectly acceptable to compute your rebate factor annually and use it for the entire year.  If there is a significant change during the year then it would be reasonable to expect to see an adjustment to the rebate factor being used. 

 UNRECOVERED HARMONIZED SALES TAX TABLES 

How to Use the Tables 

Before the introduction of the OHST on July 1, 2010 only certain purchases (mostly tangible goods and some services on tangible property) are subject to the Ontario Provincial Sales Tax. 

To use the Tables as a guide to estimate the impact of the proposed OHST on your organization you will need to: 

1.        Identify and quantify your expenses (including replacement reserve costs) which are currently subject to the GST (a simple spreadsheet summarizing such costs by category in the same manner as your annual budget is prepared will work – see above table “Cost Categories to Focus On” for an example of a useful layout); 

2.        Next, using this summary of costs attempt to isolate or estimate those costs that currently also include PST.  In essence, what you are trying to do is estimate the percentage of your current total GST paid costs that include PST as well.  The above table “Cost Categories to Focus On” sets out this calculation which shows a percentage of approximately 30%. 

3.        Once you have this percentage simple choose the table below that best fits your current GST rebate percentage or factor (i.e. we receive a rebate on 46% of our GST paid purchases) and follow the left hand column down to the percentage of costs currently subject to PST (as calculated in 2 above).  The forth column on that line will approximate the increase in your un-recovered tax. 

For example, referring to the Municipal Rebate Tables below if your organization is eligible for a municipal designation rebate of 100% on 50% of your GST paid and your organization’s percent of costs currently subject to PST is 20% then you should expect an increase in your overall tax paid costs of 3.28% or $328 dollars for every $10,000 of taxable costs.

MUNICIPAL REBATE CHARTS 

QUALIFYING NPO REBATE CHARTS

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