Farming with HST

HOW WILL THE NEW HARMONIZED SALES TAX EFFECT FARMS?

ON JULY 1ST, 2010, Ontario’s Retail Sales Tax will be combined with the Federal Goods and Services Tax to create a single, federally administered, Harmonized Sales Tax (HST).

Farmers need to be aware of what this change will mean for their farm business. Consumers, including farmers when purchasing non-farm goods, can expect to pay an estimated increase from $150 to $500 per year as a result of the HST. The amount of tax paid will be determined by consumption levels. In order to ease the transition for consumers, a one-time HST rebate will be made to those earning less that $160,000 per year.

Although consumers will see an increase in their tax payments, farm businesses will benefit from the change.

The Ontario Federation of Agriculture is currently estimating that farmers will yield a significant net sales tax savings (on items purchased for farm use) of $29 million annually. This savings is the result of an increase to the number of farm inputs that are tax exempt. Many farm inputs that are currently exempt from sales tax will remain exempt, including grain handling equipment, seeders and pesticides, among others.

Inputs that are not exclusively farm inputs which are currently free of PST will be taxed through HST. However, this tax will be rebated as an Input Tax Credit (ITC). Currently, many of these items are tax exempt at point of sale with the use of a General Farm Organization membership card (such as an OFA card). This exemption will likely no longer be available under the new HST structure. Point of sale exemption will most likely no longer be available for:

• Veterinary drugs and services such as deadstock collection
• Mineral, salts and vitamins
• Electric motors
• Generators
• Hand tools
• Lubricants
• Farm fencing
• Electricity and natural gas
• Custom farm services

Understandably, this change may have implications for cash flow on farms. However, farmers are allowed to make ITC claims monthly to avoid cash flow bottlenecks. From an administrative point of view, farmers who currently file GST Input Tax Credits will not notice much change. All input tax credits can be claimed on the existing GST return.   

Finally, farmers will see real savings from an extended list of inputs for which they can recover sales tax through an ITC. Many items that farmers are currently paying full tax on will become tax exempt. Under the new tax structure, farmers will be able to save on items such as:

• Freezers
• Office equipment, computers, software and printers
• Motor vehicle repairs and service (for farm plated vehicles)
• Motor vehicles for use in farming (trucks, autos and parts, vehicle conversion costs)
• Equipment rental

For more information on the HST and how it will impact your farm, the Ontario Federation of Agriculture has resources online at www.ofa.on.ca. •