Who says small-business owners can?t have their cake and eat it too?
Small-business owners, such as restaurateurs, hair stylists and gym owners, who opposed the 12% harmonized sales tax (HST) because it forced them to charge customers more tax than under the previous provincial sales tax (PST) system, can have it both ways.
They can look forward to a system sometime early in 2013 when they can once again have lower effective prices by simply charging customers the 5% federal goods and services tax (GST).
Until then, however, they should take advantage of the current HST by:
?stocking up on office supplies;
?renovating office space; and
?buying equipment.
Investing in those things as soon as possible will help them reap a 7% savings, said Gabrielle Loren, who is a partner at the chartered accounting firm Loren, Nancke and Co.
?Don?t wait until the last minute because we don?t officially know exactly when the change to the PST-GST system will happen,? she said.
Vocal HST opponent Ron Zalko is one of many small-business owners who are overjoyed that British Columbians voted 54.73% to eliminate the controversial levy and who has a difficult time seeing anything good about the controversial 12% tax.
Zalko told Business in Vancouver in early September that he bought gym equipment before the HST was enacted and has not bought much since.
He is considering potential new equipment purchases but is not going to let tax changes impact his decision about whether to make a purchase or not.
Loren believes that this could be a mistake for Zalko and any other small-business owner who is registered to collect the HST.
Were Zalko to buy a $10,000 exercise machine before Victoria transitions back to the PST-GST system, he will pay $10,000 plus a 12% tax of $1,200.
He is then eligible to deduct $1,200 from the HST that he charges his customers to work out in his gym and then remits to Canada Revenue Agency.
If Zalko waits to buy equipment until the PST-GST transition has completed, he will still pay 12% in tax (7% PST plus 5% GST).
The difference is that he would only be able to deduct the 5% GST, or $500, from the 5% GST that he charges his fitness enthusiasts and then remits to CRA.
His saving, therefore, by buying the equipment sooner than later, is $700.
The key thing here is that Zalko is both registered to collect the HST and he actually does collect the tax from his customers.
Insurance salespeople, for example, do not qualify for these savings on capital purchases because they do not charge customers the HST when they sell products.
Entrepreneurs who do collect the HST, however, can reap savings if they buy necessary equipment and tools that are:
?central to their business;
?worth a total of at least $500 per transaction; and
?products that will last at least one year.
?In my business we use a lot of calculators,? said Loren, who is a chartered accountant who formerly worked in Canada Revenue Agency?s audit divison.
She said that if she buys $501 (plus $60.12 HST) worth of calculators, staplers and other small office tools all at once, it is likely that CRA will accept that the purchase was central to her business and therefore allow her to deduct $60.12 from the HST that she charges her customers and remits to CRA.
?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 of the PST-GST system,? Loren said. ?It is also a good idea to consult an accountant directly.? ?
