HST's Hidden Impacts on Your Business

by Peter Forint, BA, MBA

On Canada Day (July 1^st), full implementation of the HST will be here, but is your business truly ready?  You've probably had many meetings with your accounting and IT advisors preparing your information systems for the change, so you are likely ready from an operations perspective, but do you understand the full impact the HST will have on other areas of your business such as sales, marketing, supply chain, profit margins, pricing and cash flow?

Our current PST has different effects on different industries.  There are often layers of embedded PST on input materials meaning that PST and GST are being charged on top of previously paid PST.  Under HST, this double-taxing should be eliminated throughout your supply chain as Input Tax Credits (ITCs) in the same way the GST is now.  For most businesses, this means the pre-tax price that you charge your customers should decrease. 

If you are in an industry that provides quotes or earns business through tendering, such as the construction and renovation sector, you need to ensure that you fully understand how to eliminate any embedded PST prior to costing out new projects; otherwise, your quotes may be higher than your competitors on materials.  Be careful not to inadvertently price yourself out of jobs because you do not understand the true cost of your supplies.

Unfortunately, GST exempt businesses, such as the providers of personal, health, and financial services, will not be able to claim ITCs, so their prices will go up to customers.  If you are in such a business, ensure your supply chain has eliminated the embedded PST in their prices to you and then adjust your prices accordingly, to keep any increases to your customers to a minimum.

You may be eligible for a Transitional RST Inventory Rebate for Residential Property Contracts if you are in the construction and renovation sector.  Essentially if you buy inventory and pay provincial retail sales tax before July 1, 2010, but installation occurs after, you may qualify for a rebate of the provincial sales tax.  See details at http://www.rev.gov.on.ca/en/notices/hst/03.html#transitional.

Are you a commercial or residential landlord?  Do your tenants pay for their own utilities, or are they embedded in the rent?  For commercial landlords, you will need to provide your tenants with full HST details for their accounting.  For residential landlords, it appears (at time of writing) that you will not be able to pass the HST to your tenants, even as an Above Guidelines Increase.   You may want to consider separating utilities in future leases, and take advantage of utility incentive programs for installing individual tenant meters if they are not already in place.

Finally, you need to consider the cash flow implications of the HST on your business, especially if you were paying PST and GST on different schedules.  You may find yourself with much more or less cash flow in any month, quarter or even year, depending on how and when you are required to collect and remit your HST.

With the July 1^st deadline quickly approaching, now is the time to ensure your business is fully prepared to handle both, the obvious and not-so-obvious impacts of the HST.

Peter Forint is a management consultant with Wardell Professional Development, a business coaching and consulting organization serving owner-managed and family run businesses.  Email:

peter.forint@wardell.biz; Website: www.wardell.biz; GTA: 416-290-5718, Toll Free: 877-290-5718.

For more tips on managing cash flow read Managing Cash Flow - Part 1 - Getting Paid and Tips for Managing Cash Flow - Part 2 - Managing Expenses.