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Small-business owners face HST complexities

New tax will change business practices and pinch cash flow. Small-business owners who procrastinate or fail to prepare in May for the 12% HST in July risk a host of negative consequences.

Nasty surprises include cash crunches of government penalties for doing things wrong, said certified general accountant Eileen Reppenhagen. “You can’t just switch July 1,” said Reppenhagen of tax tip website Taxdetective.ca. “From May 1, you will have to examine every transaction’s component parts. The HST starts July 1 for [inventory] delivered after that date. If you’ve invoiced for them or charged for them ahead of that time, you have to assess the HST ahead of time.”

Her biggest lesson from small-business owners is that the HST is complicated – so complicated that she advertises entrepreneurs who do their own taxes to consider hiring an accountant. Those who forsake this advice should be aware of the following elements of the new tax:

It is illegal to advertise or advise customers to avoid the HST by buying a product before July 1. Doing so Reppenhagen said, will incite the wrath of Canada Revenue Agency tax officials.

So-called place-of-supply rules are likely to change. These regulations determine what province’s tax rate applies when products or services are sold across provisional boundaries.

Businesses are likely to need more capital up front to finance an operating line of credit.

Funeral services and caskets are an example of a product that many people buy for themselves or loved ones years ahead of time. Customers will be able to avoid HST by buying these services now. But tax officials take a dim view of businesses that promote buying now to avoid the HST, Reppenhagen said.

“It’s the same thing with tickets or fees for a sports team. If you’re a soccer dad and your team normally sell tickets or collects money in July for the season of September to March, you can’t all of a sudden switch your collection date to April and say, “we’re collecting this year to get around the HST,” Reppenhagen said. Doing so could prompt federal tax collectors to deem that the HST should have been paid, she said.

Is your company fully prepared for HST? If not don’t panic we can help. Contact us now for advice from our highly qualified team of bookkeepers and accountants. Click here to get in touch with us.

Source: Business in Vancouver

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Posted in Blogs, tax tips