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The HST officially comes into effect on July 1, 2010. The following are some things to consider so your business can plan for a smooth transition. This is not intended to be an exhaustive list and we recommend getting tax advice directly from your accountant so you are fully prepared for the HST.

Key dates. Business owners should be aware of the following dates:

(a) May 1st, 2010 – HST will have to be collected on all applicable amounts that are paid or will become payable on or after May 1st, 2010, for all goods or services that are provided on or after July 1st, 2010;

(b) July 1st, 2010 – effective July 1st, 2010, Ontario's Retail Sales Tax (PST) be replaced with HST; and

(c) October 31st, 2010 – The PST regime will cease to exist in Ontario. Any outstanding PST will become payable under the transitional rules to facilitate the efficient wind-down of the PST. Note also: Final PST returns will generally be required to be filed on or before July 23, 2010. All supplementary returns would be required to be filed no later than November 23, 2010.

Watch your cash flow. Like the GST, HST will be remitted when billed, not when collected. If cash flow is already tight, adjustments will have to be made so the 13% HST rate instead of the former 5% GST rate can be remitted on time. Consider whether it is appropriate to adjust your filing frequency.

Make sure HST is being collected and remitted properly. The onus is on the business to determine if a payment is subject to HST and to remit the correct amount. Whereas former inaccuracies would only draw a 5% liability, now it will be more significant at 13%. In addition, large businesses (taxable sales over $10 million annually) will be subject to certain restrictions on the total amount of HST they can claim on some items. If tax is not tracked properly, liability may be incurred. Remember, as with GST, directors are personally liable for unremitted HST.

Review contract terms. Do your prices include tax or is tax extra? Is tax referred to as value added tax or just GST? If contracts cover services to be provided after July 1, 2010, there will be different tax rates depending on the period of time in which the service is provided.

Be aware that customers may be looking to renegotiate contracts. In particular, municipalities, universities and colleges, school boards, hospitals and charities will be required to pay the entire 13% HST rate as opposed to the 5% they were subject to previously. If you do business with these industries, they may want a reduction in your price to cover their shortfalls.

Acceleration of various purchases can help save your business money. Products that are now non-taxable PST products and are purchased on or after July 1st will qualify for input tax credits for the provincial portion of the HST in addition to the federal portion. If your business is considering making such a purchase, for example, custom software, real property, non-taxable services, it will want to do so on or after the implementation of HST (July 1st, 2010). Note, however, that businesses with taxable sales in excess of $10 million will be subject to certain restrictions.

Delay in purchases can help you save money. If you are not the end user of various products that are currently subject to both GST and PST, delay in purchasing until after June 30th, 2010. Products include virtually all goods, taxable services, software and many more goods and services. If these products are purchased after June 30th you will be eligible for input tax credits of 13%. Note as per above that businesses with taxable sales in excess of $10 million will be subject to certain restrictions.

Place of Supply Rules proposed for July 1. Although still in the proposal stage, these rules will be needed to determine which rate of tax applies as between an HST participating province and a non-participating province. If you do business in provinces other than Ontario, be aware that tax rates will vary by province.

Ontario may offer you support to assist in the transition. Although your cost of business may be increasing, and your accounting staff may be in a frenzy, the government of Ontario is offering up to a total of $400 million in one-time transition assistance to small business in the form of transition support. Most businesses, other than financial institutions, with less than $2 million in annual revenue from taxable sales, will be eligible for the Small Business Transition Credit of up to $1,000. Speak to your accountant or your local CRA representative to find out if you are eligible.

Amy M. Delisle and Sarah MacDonald are corporate lawyers at Keyser Mason Ball, LLP. They can be contacted at adelisle@kmblaw.com and smacdonald@kmblaw.com for further information about how HST will affect your business and many other corporate issues.