HST is here to stay and it affects all designers, regardless of where you live. So take note
I SUPPOSE it’s human nature. We put off dealing with issues until tomorrow that we deem to be unpleasant when we know we should take care of them today. Unfortunately, the future has a funny way of creeping up on you. Well, at least it has for designers in British Columbia and Ontario, whose provincial governments opted to introduce Harmonized Sales Tax (HST), effective July 1, 2010.
In spirit, HST simply combines GST with PST to expand the reach of the Canadian Revenue Agency’s (CRA) enforcement activities. If this alphabet soup is getting too thick, just wait. It gets better.
And it isn’t as if HST is a new thing, either. Designers in New Brunswick, Nova Scotia and Newfoundland and Labrador have been coping with harmonized sales tax since 1997. While GST had the
same rules for designers regardless of their jurisdiction, HST promises to make life much more complicated. Indeed in Ontario, the Association of Registered Graphic Designers of Ontario has been conducting webinars with legal and tax experts to alert their members of the changes to the place of supply rules made to accommodate Ontario and British Columbia and provide information on how to deal with the new tax landscape.
Understanding HST
HST is not GST. The rules around when it applies (and to what types of projects it applies) are different. It is important for all designers, regardless of where they live, to be familiar with the place of supply rules. That’s because HST is applied to services based on where the client is physically located. For example, an Alberta-based design firm working for an Ontario-based client could potentially see the total cost of a project increase by eight per cent, the difference between Ontario’s HST (13 per cent) and GST (five per cent), which Alberta firms already charge. Similarly, a B.C.-based firm working with an Alberta client will only collect the five per cent GST, as per the tax rules in the client’s province of residence.
To get a handle on the impact that HST will have on your business, work with a sales tax professional or in-house controller. Try and break it down into two simple questions: where is the client located and what type of work was completed? Grab a spreadsheet and walk through your old invoices, then create “mock” invoices as if the HST rules were in place. You want to ensure that you have a wide variety of projects and clients covered. Take careful note of the services that would have required you to charge HST and which ones would not. This exercise will help you establish new benchmarks for project pricing. It is a daunting task but by actually recreating the invoices, you will gain a deeper appreciation for the differences.
It pays to have friends
While you can attend all of the tax webinars and read all of the financial articles in the world, it’s highly likely that your interest level in understanding tax rules borders on zero. That’s why you chose design as a career, after all. Fortunately, there are people in every community who make this their career. So if you are not working with a professional sales tax accountant who can help you through this maze, now would be a good time to find one. Should you find yourself in the unenviable position of being audited, you’ll appreciate their counsel.
But their sage advice isn’t all you’ll need. Cyndee Todgham Cherniak of law firm Lang Mitchener works with clients on tax-related issues. “The first goal of an audit is to prove to the auditor that you’ve done nothing wrong,” she says. “A big part of proving yourself to an auditor is being able to clearly communicate and demonstrate that you are doing things properly.” Todgham Cherniak advises clients to make sure they have the right information-gathering and information-communicating processes in place.
Consider creating a new section in your project brief that captures the key HST-related information in a simple and easy format. The easier it is for you to complete, the more likely you will make it part of your
regular process.
A “helpful” sales tax?
Putting the economic merits of a value-added tax aside, understanding the intricacies of HST can give you a competitive advantage over graphic designers who do not take the time to learn the ins-and-outs.
Sure it’s enough to make you pull your hair out but understanding the tax can give you the edge over someone who doesn’t. You can steer clients into lower-cost alternatives and impress them with
your knowledge of the tax code.
Take it one step further and hold a seminar for your clients where a tax expert can explain the impact that HST will have on their design-related costs. You might be surprised to learn that you know more
about HST than some of your clients. And that’s a good way to solidify a client relationship.
Article originally published in Design Edge Canada magazine. www.designedgecanada.com
