Making the Most of HST While it’s Here

As of March 31, 2013, small business owners across the province will face a big change as the HST system will be reverted back to PST/GST. What this means for small businesses operating in British Columbia, and businesses that have clients in British Columbia, is that until March 31, 2013, you will need to continue to charge your clients in accordance with the current HST rules.

A Tax Planning Opportunity

The loss of the HST system will be felt by many businesses across BC; however there is also a tax planning opportunity that should not be missed.

If you are planning a capital purchase for your business, make sure it is bought before March 31, 2013. Capital expenditures include any item that costs more than $500 and will last you for more than a year.  Examples of capital expenditures include equipment, hardware, software, tools, and office furniture to name just a few.

The reason it’s beneficial to make these purchases under the HST system is that you will only pay the net cost of the item and will be reimbursed for all taxes due.  However this is only the case if your business is registered for HST.  By waiting until after April 1, 2013 to make your purchase, the cost of the item to your business will increase by 7%.

For Example…

Let’s use the example of a purchase of equipment that costs you $10,000.

If that equipment is bought today, then your cost is $11,200 – $10,000 plus $1,200 of HST – but your business will be able to deduct the $1,200 HST from the amount you owe to the CRA, from HST collected through your sales for the year.  If the amount of HST your business has collected is less than $1,200, then your business will get a full refund of $1,200.

Under the PST/GST system, your cost will still be $11,200 – $10,000 plus $700 of PST and $500 of GST – but now you will only be able to deduct the $500 in GST.

A New Type GST/PST System

Being in business is never easy, so make sure you familiarize yourself with the rules applicable to your business under the current HST system and keep up to date on news about the future GST/PST system, as rumour has it, it will not be exactly the same as before.

For More Information

For more information on allowable deductions and your small business tax requirements, check out Gabrielle’s Tax Tips from an Accountant, run monthly in the Small Business BC Education Centre.