Outlook 2013: Preparing for PST – save now or pay later

Businesses should consider major capital expenditures and buying consumable inventory before the switch back to the PST

With our minds on the holiday season, it's easy to forget that the reinstatement of PST and GST is just over three months away. With that being said, I interviewed Grant Gilmour (gg@gilmour.ca), founding partner of Gilmour Knotts Chartered Accountants, to find out what the implications are for businesses and consumers.

For small business, it's advisable to get ahead of the curve, think about how you can save on taxes before and after April 1 and seek advice if you need help.

Q&A

Q: Who will benefit from the switch back to a dual system of levying a provincial sales tax and a separate federal goods and services tax?

A: The people who will benefit most are the consumers that buy items that will be exempt from PST. For them, the HST tax rate will drop from 12% to a GST rate of 5%.

Q: Who will be worse off as a result of the switch back to PST?

A: Businesses that will not get a refund of the PST on items they use. Under the HST, a company would get a full refund of the 12% HST on items purchased and used by the business, like office supplies and furniture. Under the PST rules, businesses will get only the 5% GST refunded, and the 7% PST will be an expense. So it will be like a new 7% expense paid by businesses. This could be hard on our economy.

Q: Are we simply reverting to the system that was in place in June 2010? Is the new PST the same as the old PST?

A: Not really. We have a new act that has many of the same rules as the old act, but there are a lot of differences. For example, software and computer services are more clearly taxed under the new PST, and some GST rules changed when the HST came about, and those GST rules are not changing back. This means that some things will have different PST rates than they did before. For example, the purchase of a boat from a non-GST registrant was previously subject to 7% PST but now it will be subject to 12% PST under the new system.

Q: How can people save on taxes?

A: For most people, it's best to wait until after the change to buy most large items because they will pay less tax, but for businesses, it'll be the opposite. Businesses should consider major capital expenditures and buying consumable inventory before the switch back because many items will have a full refund of the HST if purchased before April 1, 2013, and only a partial refund of the GST/PST combination on and after April 1, 2013.

Q: What tips do you have for business owners?

A: Business owners should seriously consider the cost benefit of stocking up on consumable items before April 1, 2013, and capital items like new vehicles before the switch back to PST.

Q: What happens if I lease equipment?

A: This is actually bad news and should make you think about early payout of leases and not necessarily getting into new leases. For example, if you have a lease before the switch back to PST, your business pays $100 lease payment plus $12 of HST, and it will get all the HST back. After the switch, the same lease payment will be $100 plus $5 GST and $7 PST. It will get the $5 GST back, but the $7 PST will be an expense. That's 7% inflation.

If your business is planning capital expenses for 2013, you should consider financing with a loan as opposed to a lease and consider buying before April 1, 2013. Manufacturers will not be as worried about this though because the return to the exemption on manufacturing machinery has been promised and the PST would not be due on manufacturing equipment. It's important to understand exactly what the definition of manufacturing equipment is to know what is or isn't exempt.

For small business, it's advisable to get ahead of the curve, think about how you can save on taxes before and after April 1 and seek advice if you need help. •

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