Ontario – New Harmonized Sales Tax

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Have you ever asked a question and wish you had not?  That happened to me last week.  I asked one of our senior managers (a CA) “What do you know about GST/HST and the pending harmonization?”  His response — “It’s Complicated!”

Being an inquisitive type I started to do some research and — wow — was he right.  This new mandate for Ontario (and maybe some additional provinces) is going to have a significant and profound impact on our industry so I thought I would share some of what I have learned with you. 

First of all, it is a most interesting name – Harmonized Sales Tax – sounds pleasant… right?  Not exactly, based on what I could find out it brings harmony because in order to implement HST a builder is thrown into chaos bordering on pandemonium.  It is difficult to fathom how a builder, remodeler, or renovator can manage all of the requirements and continue to run their business.  For this reason, Constellation HomeBuilder Systems is making changes in our NEWSTAR Enterprise production and accounting system, to help the builder deal with the new tax rules and we’ll be ready when the rules come into effect.

Let’s cover a couple of the basics.  When? The new law goes into effect July 1, 2010, less than a year away.  Who is impacted?  All companies including builders, remodelers, and renovators are subject to the new regulations.  To further confuse you, some of the exemptions you had in the PST regulations no longer apply.  Not confused yet?  Well then, they will add some new exemptions for you to understand and keep track of.

You need to be planning for and understanding how you are going to comply with these new regulations.  One piece I read had some reassuring news… “The province acknowledges businesses will have to change their accounting systems”. 

With past regulatory changes Ontario builders have been able to rely on internal resources to address them.  This one is going to be a little tougher.  The transition rules for projects already under contract or under construction are likely to be more complex and require more information from your production system.  As an organization you can train your staff to learn the intimate details, or you can rely on your software partner to build these rules into their systems.  Constellation has a proven track record for doing this with Tarion requirements, GST calculations, payroll taxes, and other regulatory requirements in Canada and the United States.

HST is complex and I can show you how I came to this conclusion.  I “googled” HST and on the first page of search results I found some good information.  Here are a few of the links I found worthwhile.

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/menu-eng.html
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/cnstrctn/menu-eng.html
http://www.canadabusiness.ca/gol/bsa/site.nsf/en/su07017.html#a1

The reason I say complex… The first link I gave you above has no less that 17 additional links to find more information.    Are you equipped to deal with this?  To make matters worse these taxes add to the purchase price of your houses and construction projects.  So how are you going to do this?

It is time to rely on your software partner.  Let them (us) do the heavy lifting and make the changes to your accounting and production system.  It is your software company that should be responsible for these changes.  Constellation has been very involved with the local home building associations and we will continue to be involved to ensure that our systems will include the functionality our customers need. We have already made the necessary changes for GST/PST and TARION and as a Canadian company we have a better understanding of these changes than any other software provider.  So if you are managing these statutory changes outside your core software, it is time to make a change.  If you are sitting on the fence delaying a software purchase now is the time to decide.

It is not all bad news.  There could be a small buying frenzy created because of the new taxes.  A buyer will see savings should they purchase and close before Canada Day next year.  Leverage that information and create a sense of urgency in your buyers.  Show buyers how delaying their purchase will cost them more money.  If you have inventory homes or lots waiting for new homes your sales team can take advantage of this knowledge.  Sell a few more homes and ease the transition.  Now that is what I call harmony!

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