1 May 2006

Anticipated Reduction in GST Rate -- Are You Ready?

The following notes are from Ernst & Young’s Commodity Tax Services.

A 1% reduction in the GST/HST rates is widely anticipated in the upcoming May 2 federal budget. With little time expected between an announcement and the effective date of the rate change (possibly hours), businesses will need to be ready to make the necessary changes to their systems within a short time frame. To ensure compliance, necessary steps may include the
following:

• Update tax tables for accounts receivable and accounts payable systems to adjust the GST/HST rates. Keep in mind that Quebec Sales Tax and Prince Edward Island Retail Sales Tax will also be affected because these taxes are calculated on a base that includes GST.

• Reprogram cash registers and other point-of-sale systems to calculate the new rates of GST/HST (and potentially Quebec Sales Tax and Prince Edward Island Retail Sales Tax).

• Revise journal entries and payments that are automatically set to calculate periodically.
• Adjust employee expense report systems to reflect the new tax rates and/or prescribed factors for calculating allowable input tax credits.

• Revise electronic and paper purchase order and invoicing systems to reflect the new GST/HST rates. In addition to the immediate steps that registrants may have to take, numerous transitional issues, such as the treatment of leases, royalties, prepayments and price adjustments, may need to be addressed.