Consider quarterly claims to minimize HST impact

Thursday, June 10, 2010

by BRIAN LOCKHART

The new harmonized sales tax that will come into effect in Ontario on July 1 may not have a huge impact on agriculture at the grass roots level but planning wisely will maximize the benefits for farmers in the province.

“On farms we will be dollars ahead,” says Ontario Federation of Agriculture researcher Ted Cowan, but adds, “I’m not convinced it will make a big difference.”

The HST will combine the current eight per cent provincial sales tax with the five per cent goods and services tax and allow farmers to claim a rebate on business related expenses for the entire amount of the tax.

The Federation and the banking industry predict a savings to the farm industry in Ontario of about $30 million.

That translates to an average of around $600.00 annually for typical farm producers provided they are properly registered for the HST.

“The sensible thing is to be registered every year,” Cowan says. “If they buy a truck they could end up saving $1,000 to $3,000 and between $300 and $1,000 on other farm expenses.”

Previously, PST applied to farm equipment purchases and was not refundable. Now HST will apply — and will be refundable. But Cowan cautions those planning to finance a purchase through borrowing to prepare for a small, added cost. The new tax will add to the up-front cost of the purchase and that additional amount will generate interest until the rebate is issued. Farmers will not be able to recoup this interest-related cost.

The new tax won’t change a farmer’s existing ability to borrow or credit rating, says BMO Bank of Montreal commercial and agriculture markets manager Dave Dieleman. “The gains aren’t significant. This is not a huge hit for farmers.”

The wise move, Dieleman says, is to make the best use of the rebate.

Farmers could “pass it on to consumers through gate sales for example, or invest in capital items for the farm or pay down debt,” he says.

Either way if you’re not sure, Dieleman recommends speaking to your account manager for some advice.

The Ontario Ministry of Revenue website states that HST is being put into place to create a competitive market on par with European countries and other provinces.

“Down the line the savings will be passed to consumers,” says Jordan Bowles, an accountant with Collins Barrow Chartered Accountants in Stratford. “But it won’t happen overnight.”

The biggest concern for farmers will be “carrying the cost of purchasing large equipment until the rebate comes through,” he says.

But you can ease that burden a little if you claim your rebate as early as possible.
Typically farmers do it quarterly, he says. It’s the most reasonable time for them. “But people who do it annually should start doing it quarterly.”

The HST should also produce a ripple effect as farming related industries such as vegetable processing plants take advantage of HST exemptions to save on start up costs.

‘It will cost them less than it used to,” Cowen says of plant expansion, noting that previously they may have had to pay PST for equipment and services. “And business in Ontario will benefit from it.”

Employers will have a “better investment future,” because they will be able to save costs and reinvest the savings into their business, he says. “HST is going to be a nuisance for the consumer but for farmers it will be a plus.” BF