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Tax experts warn small biz to prepare for HST




September 23, 2009, Toronto – As Small
Business Week approaches, tax experts are warning businesses about the dramatic
impact harmonized sales tax (HST) could have on them next summer and to start
planning now.



Stern Cohen LLP partner and 30-year tax
veteran, Keith Rosen, has the following advice for all small businesses as
Ontario and B.C. move from a provincial sales tax (PST) system to a harmonized
provincial and federal system starting July 2010:

Some are going to get it in the gut, so
start planning. The "consumer" businesses such as residential
landlords, medical professionals and insurance brokers, which pay GST regularly
to contractors and suppliers need to brace themselves for a big cost coming
down the pipe. Some may want to think about adjusting their pricing to
accommodate the increase in what they will have to pay out in tax. They may
also want to consider ways to avoid paying GST such as moving towards an
employee, instead of a contract, model. For residential landlords, expect
discussion around rent control to become an even hotter and more important
issue.

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Everyone needs to be careful. For
businesses that make taxable, rather than exempt, sales, sloppy record keeping
just got significantly more expensive. "Businesses, for example, are only
allowed to claim half of the input tax credit for meals and entertainment,
something that is often overlooked by small businesses that try to claim credit
for all of it. With a tax rate increase from five to 13 per cent, the cost of
such an error will more than double," said Rosen. "Excessive claims
for meals and entertainment and automobiles are among the most common targets
of tax auditors."

Understand the risk of playing games when
the rules are not yet set. Transition rules have not yet been announced. Expect
rules to be specific for individual business types and to prevent playing with
the timing of invoicing and receipt of payments. "For someone in a service
business that is tempted to offer the ability to prepay for service after June,
watch out for upcoming transitional rules which may trap you or the people you
are charging," said Rosen in a company release.