by Ryan

"What's New in Provincial Commodity Taxes" is a feature exclusive to CCH Canadian Limited's provincial tax reporting services. Prepared by Ryan, Canada's leading commodity tax consulting firm, this feature provides readers with insights into government policies, bulletins, and related documents that are included in your CCH provincial tax service. In your electronic service, click on the link to the document referenced to view it directly, and rely on CCH and Ryan^® to keep you up-to-date with expert commentary on breaking developments in Canadian commodity taxes. This article first appeared in CCH’s Ontario Tax Reporter No. 566 dated July 2009.

Ontario

Harmonization Update

The Government of Canada and Government of Ontario have released a Memorandum of Agreement ("MOA") which provides the framework to be used in negotiating and concluding a new Canada–Ontario Comprehensive Integrated Tax Co-ordination Agreement. Under this MOA, the Canada Revenue Agency and the Canada Border Services Agency will administer an Ontario value-added tax.

While most of the agreement terms were previously announced in the 2009 Ontario Budget, it is interesting to note that both parties to the MOA have agreed to make every effort to fulfill the obligations as set out in the MOA. In addition, all policy and administrative details are to be finalized, including any necessary legislative processes and the signing of any required agreements, prior to March 31, 2010, except where otherwise specified in the MOA. If achieved, this target date will ensure that any necessary legislative changes are completed just three months prior to the planned implementation date of July 1, 2010.

In anticipation of a flurry of questions from both taxpayers and tax practitioners leading up to the introduction of a Harmonized Sales Tax ("HST") in Ontario, the province has issued the first in what is expected to be a lengthy series of Information Notices on the subject. Ontario Information Notice No. 1, "Single Sales Tax", provides further details on the proposed move to a single value-added tax, which is scheduled to take effect on July 1, 2010.

For the most part, the Information Notice summarizes many of the details announced in the aforementioned Budget. However, a few new elements of the harmonization plan for Ontario are also revealed, including the following:

• The point-of-sale rebate for the provincial portion of the HST on books will include audio books, where all, or substantially all, of the book is a spoken reading of the printed book;
• The temporary input tax credit restrictions applicable to large businesses for the provincial portion of the HST with respect to expenses for road vehicles weighing less than 3,000 kilograms will include parts and certain services. Interestingly, the current input tax refund restrictions in place for QST purposes (on which the HST input tax credit restrictions appear to be modelled) include the same class of road vehicles, but exclude the repair and maintenance of such vehicles; and
• Similar to the rules currently in place for QST purposes, the proposed input tax credit restrictions on the provincial component of the HST for large businesses will not apply to goods or services acquired solely for resupply. Purchases by car dealers and utilities companies are cited as examples of exceptions to the restrictions.

  From the notice, it also appears that Ontario is willing to accept a 2 per cent net reduction in provincial sales tax imposed on admissions to places of amusement costing more than $4. These admissions, with a few exceptions, are currently subject to 10 per cent retail sales tax and 5 per cent GST, for a combined total tax rate of 15 per cent. However, under the proposed HST in Ontario, such admissions will only be subject to a single tax of 13 per cent, resulting in a 2 per cent decrease in the tax rate on most admissions—good news for those in the entertainment and tourism industries and their customers!

  The province is expected to release additional information in the near future to help taxpayers and businesses prepare for the proposed changes under a harmonized system.

Information Notice, "Ontario Electronic Stewardship Fees"

Ontario has issued this notice to explain how retail sales tax applies to environmental fees, which may be passed on to consumers of electrical and electronic equipment ("EEE") products under the Waste Electrical and Electronic Equipment ("WEEE") Program Plan. As of April 1, 2009, an environmental fee is imposed by Ontario Electronic Stewardship ("OES") on industry stewards that distribute or sell EEE products, such as manufacturers, first importers of goods, or franchisors.

Retail sales tax does not apply to the fee payable to OES, as the charge by the organization is not considered to be in respect of taxable goods or services. However, if an industry steward recovers the cost of the stewardship fee by passing it on to retailers, the fee forms part of the fair value of the products sold. Furthermore, if retailers, in turn, choose to recover this fee through higher prices or by showing a separate charge on customer invoices, this extra cost forms part of the fair value of the products and/or services sold and, consequently, may be subject to retail sales tax.

Information Notice, "Simplified Calculation of RST for Computer Program Services"

The notice has been published by the province to inform taxpayers that the "Simplified Calculation" pilot project for small businesses that provide computer program related services has once again been extended until June 30, 2010. The Simplified Calculation is an optional method, available for authorized vendors of computer services, to calculate retail sales tax on sales that include both taxable and non-taxable services at a reduced retail sales tax rate of 6 per cent. This program was previously set to expire on March 31, 2009. While the extent of participation in the program was not announced, it is somewhat ironic that the province has decided to extend the "pilot project" until the day prior to the planned implementation of Ontario's HST-at which point, any conclusions drawn from the pilot study will be obsolete.

British Columbia

Information Notice 2009-007, "Carbon Tax Rate Changes"

British Columbia has recently released this notice to advise purchasers and users of fuels in British Columbia that carbon tax rates will increase, effective July 1, 2009, for the period from July 1, 2009 to June 30, 2010, and to remind deputy collectors or retail dealers that they are required to report their fuel inventory after midnight on June 30, 2009.

In addition, the notice indicates that there has also been a change in the date by which carbon tax rates must be reported on sales invoices. The deadline has been extended from June 30, 2009 to December 31, 2009. When implemented, sellers of fuel will be required to show the rate of carbon tax, for each type of fuel sold, as a separate line or column on invoices. This requirement applies to fuel sold in the following circumstances:

• when the fuel is sold from a bulk storage facility, cardlock or terminal rack;
• when the fuel is sold to a deputy collector or retail dealer; or
• when the purchaser requests an invoice.

Information Notice 2009-008, "Notice to Deputy Collectors and Retail Dealers—Fuel Inventory"

This notice was issued by the province to inform deputy collectors and retail dealers about the carbon tax rate increases noted above and, more specifically, to help ensure that these organizations understand their responsibility to calculate and remit additional security due on fuel inventory as of the effective date of the changes. The notice does not apply to propane and natural gas sellers.