Harmonized Sales Tax (HST) or Goods & Services Tax (GST)
By Gary Hubbard, CPA, CGA
When a province (e.g. Ontario) has joined forces with the Canadian Government a 13% combined tax is in effect. (Harmonized Sales Tax). When a province (e.g. BC) has opted out, the Feds collect only 5% in that province (Goods & Services Tax) and they continue to collect a provincial sales tax (PST) on their own. (This may vary by province) The following article pertains to HST/GST only and not to PSTs.
It is important to remember that HST/GST is a "value added tax". This means that the government expects to collect the largest amount of tax from the "end user" and that any taxes collected throughout the chain of events leading up to the end user will cancel each other out. This happens when a supplier remits the tax and the purchaser deducts this same tax as an "Input tax collected" (ITC).
Let's simplify this with an example – viz. the steps involved in the recording process;
The recording studio charges HST/GST on their invoiced amount and remits this to the government. The performer/band is then allowed a refund (ITC) for this same amount as they are not the end user. In turn, the manufacturer of CDs collects and the purchaser (Individual/performer or partnership-viz band) is allowed the ITC. Any marketing, promotion, delivery, etc. costs go through these same steps. The same pertains to associated costs such as equipment rentals or purchases, supplies, legal or other professional fees, etc. associated with the recording process. It is only when the CD is sold to their customer (ultimate user) that there is no ITC and the amount collected by the government is at its highest value. However when the original GST was introduced (and maintained by HST) the rules allowed that anyone doing business under $30,000 per annum could be exempt. Bah! Humbug! This really means that if someone in the chain (a performer/band) does not have a HST/GST license (and take an ITC), the government will collect at multiple levels in the chain, not just from the ultimate user. Hmm!
Another example is the chain involved in the collection of admissions at festivals and the expenses incurred by performers leading up to that event
A performer/band has to decide if the benefits of having a HST/GST license outweigh the losses of not having one. Obtaining a license is easy enough. See www.cra-arc.gc.ca/E/pub/tg/rc2/rc2-e.html.
The benefit of having a license is that the HST/GST paid on all the band related activities/expenses pertaining to gaining revenue (or expectation of gaining revenue) is refundable when declared on the HST/GST remittance form. (This is shown as a total amount for the reporting period and details are not required.)
The downside is that HST/GST must be charged to Festival producers (who may or may not have their own HST/GST license.) If they do have a license, your charging HST/GST on top of your fee is not a hardship as they will get this back as their ITC. If they do not have a license, you have to take this into consideration when negotiating your fee as you are still responsible for the equivalent HST/GST. (It is easy enough to determine if a festival has a license. Visit their website and look for mention of HST/GST or "Taxes included".)
Also, HST/GST must be charged on sales of CDs the band makes to wholesalers, retailers or direct to customers though internet or festival sales.
HST/GST does not pertain to revenues earned or expenses incurred outside Canada. Having said this, any expenses including HST/GST incurred in Canada to earn revenues outside Canada (e.g. USA) are still eligible for the ITC.
Conclusion:
Most bands/performers I know are incurring expenses that exceed their revenues. Therefore, they should have a HST/GST license to reduce their costs. The $30,000 level is a "choice" not a requirement of obtaining a license. There is paperwork involved in keeping track of HST/GST collected on Revenues earned and expenses incurred in Canada. This should not be a deterrent as a simple spreadsheet will suffice. When I taught at Harris, I encouraged my students to "run, don't walk" to get a license.
Further information, including HST/GST by province can be found at; http://www.canadaone.com/ezine/oct03/gst.html
Until next time!
GH
