What to Charge Clients: HST, GST, or No Tax?June 29th, 2010 by Michael Kwan
If you live in the provinces of Ontario or British Columbia, you’ll be “treated” to a new tax effective on Thursday. Dubbed the HST or “Harmonized Sales Tax,” it combines the federal GST with the provincial PST. This may sound like a zero-sum event, but many products and services that were once PST-exempt will be charged the full HST amount. This includes the freelance writing services that I offer.
However, the HST is not going to charged universally among my entire client base. Now, I am not a tax expert and, should you have any questions, you’re probably better off asking a real tax professional or the Canada Revenue Agency directly. That said, based on what I understand, the tax charged to a freelance client is dependent on his or her primary business address. Here are the different possible scenarios.
1. No Tax Charged for Non-Canadians
A good number of my clients happen to be based in the United States. They typically pay me in US funds and that’s why I opened a US bank account; it helps with minimizing the loss through the currency exchange.
These clients, as well as ones from other countries around the world, will not be charged any tax at all from my end. That’s because the service is being “delivered” outside of the country and, thus, is not liable for GST or HST. It is my understanding that it is their responsibility to remit any local taxes, should they be on the hook for any.
2. GST Charged to Out-of-Province Clients
If a client is a fellow Canadian, but does not operate primarily out of British Columbia (or any other HST participating province), then he or she will be charged the regular 5% GST. That portion can be used as part of the Input Tax Credits (ITC), if he or she also has a GST number. This is a part of the write-off process when it comes to filing GST returns and income tax returns each year.
Note that the GST-only billing applies to customers who are not in an HST-participating province. For instance, if I have a client based out of Alberta or Saskatchewan, he or she will be charged GST. If this same client is in a province that does charge HST, then he or she falls into category number three.
3. HST Charged to HST-Participating Provinces
It is in this category that I, as a BC-based freelance writer, will experience the greatest change. All of my clients who are also based in British Columbia will be on the hook for the 12% BC HST as of July 1, 2010. Up until now, I’ve been charging the regular 5% GST for these clients. As you can see, this gives it the automatic appearance of a 7% rate hike.
Yes, these clients can claim some of those funds back in the form of Input Tax Credits, but the up-front cost is higher. For smaller businesses and individuals who do not have a GST/HST number, this reclamation is not possible.
To further complicate matters, I will have to charge a different tax rate to the other HST-participating provinces. This is because the BC HST is 12%, whereas the Ontario HST is 13%. If I have a client in Ontario, as I understand it, I need to charge him or her the Ontario HST rate of 13%. The same can be said about the 13% HST in Nova Scotia, New Brunswick, and Newfoundland and Labrador, though I hear the rates in those provinces may be going up too.
So, What’s Going On with the Anti-HST Petition?
In keeping track of my revenue and expenses, I have a separate column for GST. Soon, I may need to tack on some extra columns for HST and different rates of HST too. The BC provincial government is saying the implementation of HST will simplify the accounting process for most businesses, so I guess I don’t fall into “most businesses.”
Whatever the case, former BC Premier Bill Vander Zalm is championing an anti-HST petition and it’s going to be served up this week. I doubt it will have any effect on the July 1 start of HST in this province, but it may have some impact in the months (and years) ahead. Stay tuned to the news for more on that, I suppose.