INDIRECT TAX Harmonized Sales Tax Primer for Public

INDIRECT TAX Harmonized Sales Tax Primer for Public Libraries presented to Ontario Library Association Super Conference 2010 Barbara Warren February 25, 2010 1

Presentation Overview 1. Terminology and Basic Concepts 2. HST Considerations 3. HST – General Overview 4. Differences Between GST and HST 5. MUSH Sector HST Rebate Rates 6. Designation / Determination as Municipality 7. HST – Considerations for Implementation Strategy 8. HST – Impact on Libraries and Other NPOs 9. Book Rebates 10. Transitional Rules, Calculations, “Tips and Traps” 11. Importations 12. Planning Points – Purchase, Sales, Cash Flow 13. Planning for Implementation – Processes and Procedures 14. Last Look at PST 15. For Further Information © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2

Terminology and Basic Concepts HST: Harmonized Sales Tax GST: (Federal) Goods and Services Tax PST: (Ontario) Retail Sales Tax / Provincial Sales Tax ITC: Input Tax Credit. Essentially, a “refund” of GST and HST paid on “inputs” (expenses) MUSH: Municipalities, Universities, Schools, Hospitals. Generally cannot claim ITCs for the GST/HST that they pay. Some libraries may be Municipalities. NPO: Non-Profit Organization (includes libraries) PSB: Public Sector Body. Generally all levels of government, plus NPOs, charities, MUSH sector entities. Libraries are PSBs. © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3

Terminology and Basic Concepts Generally speaking most sales/supplies made by libraries are exempt of GST and will be exempt of HST Means: no GST or HST charged, but GST/HST paid on expenses cannot be directly claimed as an input tax credit Instead libraries apply for a rebate of a percentage of the GST/HST paid on costs Percentages vary (see “MUSH Sector Rebates” slide) E. g. tickets to fundraising events with donation receipt, sales of goods/services at a fundraiser, memberships © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4

Terminology and Basic Concepts Borrowing privileges (e. g. , library card) exempt supply for GST purposes; will remain exempt under HST Fines for overdue materials not subject to GST and will not be subject to HST © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5

Harmonized Sales Tax - Considerations How much will it cost? Will our IT systems be ready? Will we need to hire and budget for external resources? Should we develop a detailed implementation plan? Ontario Budget March 26, 2009 What is our implementation strategy? What are the differences between GST and HST? How will our cash flow be affected? What about tax saving opportunities? Should we review our treatment of the GST versus the new HST? Do we need an internal implementation Committee? Should we provide GST refresher training? Harmonization July 1, 2010 Can our software handle the required changes? © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6

HST – General Overview © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 7

HST – General Overview Effective July 1, 2010 Ontario PST substantively repealed HST comes into force for supplies “made in” Ontario 13% (5% federal component; 8% provincial component) Generally same rules and tax base as GST; some differences HST applies to many items not subject to PST, e. g. most services © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8

HST – General Overview Reduced compliance: No more Purchase Exemption Certificates Reduced complexity One tax One return, one administration (CRA), one audit © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 9

HST – General Overview HST same as GST subject to following exceptions Tax rates Point-of-sale rebates for books and newspapers Input tax credit restrictions 5% GST only collected on commercial imports (self-assessment may be required) Public sector body rebates calculated at different rates New housing rebates calculated on different amounts Province of Ontario to pay HST © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 10

HST – General Overview Currently not subject to PST; will become subject to 13% HST: Real property leases, licences Real property contracts (construction, management, maintenance) Energy (gas, electricity) Energy re-charged to tenants as rent Lease inducements Intangibles (rights) Services in general (consulting, laundry, dry cleaning) Sales to provincial governments © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 11

HST – General Overview PST Holdovers 8% Ontario Retail Sales Tax on insurance premiums will be retained under HST regime Self-assessment requirement will remain to the extent that risk relates to Ontario and 8% tax not charged on premiums Insurance premiums remain exempt for GST purposes 10% Excise Tax on insurance placed with nonauthorized insurer will not be affected by Ontario or B. C. harmonization © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 12

HST – General Overview– ITC “Recapture” Libraries are generally “Public Sector Bodies” Public Sector Bodies not required to “recapture” 8% provincial component of ITCs claimed on certain costs: Energy, exception for farms or used to produce TPP for sale Telecommunication services other than internet or toll-free numbers Vehicles (less than 3, 000 kg), parts, certain services, fuel to power Food, beverages, entertainment © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 13

Differences GST/HST Mush Sector Rebates © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 14

Differences Between GST and HST GST HST Federal book rebate for 100% of the GST component of HST paid on books (but not newspapers) by Public Libraries Point-of-sale rebate for 8% provincial component of HST on purchases of books and newspapers at any stage in distribution chain New input tax credit (ITC) recapture for Large Businesses PSBs, including libraries, not subject to these recapture rules MUSH partial rebates – Different rates How to track and claim will add administrative complexity! © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 15

MUSH Sector – HST (Partial) Rebate Rates Entities Rebates for 5% Federal Component Rebates for 8% Provincial Component Municipalities 100% 78% Universities and Colleges 67% 78% Schools 68% 93% Hospitals 83% 87% Charities and Qualifying NPOs 50% 82% © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 16

Designation/Determination as Municipality Some libraries may have applied for designation or determination as a municipality for GST purposes 100% rebate for GST paid by municipalities effective February 1, 2004 Libraries that are not designated/determined as municipalities: entitled to 50% rebate as “qualifying NPO? ? Consider whether advantageous to apply for municipal designation or determination © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 17

Designation/Determination as Municipality: Incorporated city, town, village, township, district, county, rural municipality or other incorporated municipal body Public library that is a separate entity but controlled by a municipality may apply to Minister of National Revenue to be determined as a municipality Can also apply to be designated as a municipality in respect of certain services that it delivers Being a Municipality is a Good Thing: Federal rebate rate 100% vs. 50% But provincial rebate rate 79% vs. 82% © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 18

HST – Considerations for Implementation Strategy © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 19

HST – Considerations for Implementation Strategy HST will affect and require: Internal operating budgets IT resources Staff training Improved internal controls Cost of errors increases from 5% to 13% Not just a rate change as in the past! © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 20

HST – Considerations for Implementation Strategy Cost impacts Pricing requirements: will you have to increase any prices? Cash flow - e. g. tax on premises rent will increase to 13% from 5% Any planning opportunities? Systems changes Sales, purchasing and accounting systems all affected Tax tables / matrices Tracking two taxes Tracking two rebate rates Imported vs. domestic sourced purchases © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 21

HST – Considerations for Implementation Strategy Allocation methodologies – commercial vs. exempt use – is GST charged on any supplies? Staff training Existing GST knowledge New HST reporting obligations Possible electronic filing requirements Seek designation or determination as a municipality? ? (100% rebate of federal component) © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 22

HST – Impact on Libraries and Other NPOs © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 23

HST – Impact on Libraries and Other NPOs Goal of rebates for NPOs, charities, MUSH sector -generally result in neutral impact Elimination of non-recoverable PST will reduce costs to libraries’ suppliers, e. g. : Construction Transportation Manufacturing Possible pass-through of suppliers’ savings? ? © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 24

HST – Impact on Libraries and Other NPOs Benefits (savings): Removes “sunk PST cost” in Computer hardware and software Telecommunications Most purchases of furnishings and equipment Office supplies New construction © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 25

HST – Impact on Libraries and Other NPOs Additional Tax Cost: Libraries planning new construction or renovations (review tax clauses in contracts) Premises rent (now 13% instead of 5%) Services (cleaning, landscaping, snow-clearing, etc) Land acquisitions not used in commercial activities Professional services, consulting fees Rebate rates designed to “neutralize” additional tax cost © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 26

HST – Impact on Libraries and Other NPOs Cash flow consideration for purchases currently PST exempt that will be subject to 13% HST “Inventory”, other than printed and recorded books: music, movies, etc. Real property leases Purchase of real property Repairs to real property Signs Custom software Services Municipalities or charity/NPO rebate may be available © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 27

Book Rebates © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 28

GST (October 1996) and HST Book Rebates Existing GST book rebate available for: printed books (certain exclusions); audio recordings (e. g. cassette, CD) of books; bound or unbound printed versions of religious scriptures Cannot be acquired for resale (“sale” includes gift) Not a point-of-sale rebate: GST is paid up front then claimed using the public service bodies rebate form HST: Ontario portion (8%) will be point-of-sale rebate; federal portion (5%) will continue to be postpurchase rebate © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 29

GST Book Rebate and “Combined Supplies” Printed book + another item packaged together and sold for single price: may be a single, new product that is not a “printed book” as defined Software (taxable) + manual (book? ): if manual is “incidental” to software, entire product considered software and taxable; no rebate for manual Book + music CD sold for single price: likely neither is incidental to the other; price must be allocated between the book and the CD Only part attributable to book would give rise to rebates Will Ontario adopt same administrative policy? © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 30

Transitional Rules © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 31

HST Transitional Rules - Timeline No HST October 15, 2009 to April 30, 2010 May 1, 2010 to June 30, 2010 No HST Collected on Prepayments; Recipient Self-Assesses on Provincial Portion if Cannot Claim Full ITCs (e. g. FIs, PSBs) Suppliers Collect HST on Prepayments Release Date (October 14, 2009) HST Applies to Supplies Harmonization July 1, 2010 © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 32

HST Transitional Rules – Key Dates October 15, 2009 – April 30, 2010: Self-assessment of provincial component of HST by entities (e. g. , libraries and other PSBs) that cannot recover full ITCs on consideration paid for goods/services provided after June 30, 2010. May 1 – June 30, 2010: Suppliers pre-collect HST on goods/services to be provided after June 2010. Equipment leases, maintenance agreements, licences of software July 1, 2010: HST implementation date. HST generally applies to consumption on or after this date. © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 33

HST Transitional Rules – Self-Assessment General Rule: Self-assess HST if Consideration payable after October 14, 2009 and before May 1, 2010 and Goods or services delivered on or after July 1, 2010 No self-assessment if Purchaser is a consumer; or Purchaser is a business entitled to a full input tax credit Libraries pre-paying for goods to be delivered or services to be performed on or after July 1, 2010 may be required to self-assess 8% provincial component of HST © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 34

HST Transitional Rules – Sale of Goods HST applies if goods delivered and ownership transfers after June 30, 2010 Prepayments for post-June 2010 sale and delivery: October 15, 2009 – April 30, 2010: supplier collects GST only; PSB purchaser self-assesses 8% provincial component and remits in return that includes July 1 May 1, 2010 – June 30, 2010: Supplier pre-collects HST © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 35

HST Transitional Rules – Sale of Goods Delivery and Ownership transferred Delivery or Ownership transferred Oct 14, 2009 May 1, 2010 July 1, 2010 1) Basic Rule: focus on delivery and ownership 2) Prepayments: 3) i. 1, 2010 4) ii. After October 14, 2009 and before May 1, 2010: PSB purchaser self- assesses 8% provincial component (unless acquired for exclusive use in commercial activities) Vendors charge HST on consideration billed or paid on or after May © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 36

HST – Transitional Rules Subscriptions Newspapers, magazines and similar periodicals No HST if paid on or before July 1, 2010 No self-assessment required even if subscription period includes periods after June 2010 © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 37

HST Transitional Rules – Non-Residential Real Property Purchases Both ownership and possession transfer to purchaser after June 30, 2010: HST applies Either ownership or possession transfers to purchaser before July 1, 2010: GST applies © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 38

HST Transitional Rules – Real Property Lease, Licence, Similar Arrangement HST applies to portion of lease interval that occurs after June 30, 2010 Lease for January 1, 2010 – December 31, 2010; lease payments due 1 st of each month: GST only on first 6 lease payments HST on lease payments beginning July 1, 2010 Exception: payment for lease interval that begins before July 2010 and ends before July 31, 2010 Lease interval June 15, 2010 – July 15, 2010; paid June 15, 2010 GST at 5% on full amount; no HST © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 39

HST Transitional Rules – Real Property Leases Exception where lease interval begins before July 2010 and ends before July 31, 2010: Lease for June 1 – July 31, 2010; 1 lease payment due June 1, 2010 Lease interval began before July 2010 but does not end before July 31, 2010 HST applies to portion of lease payment attributable to July (50%) © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 40

HST Transitional Rules – Leases, Rentals Rental period Oct 14, 2009 May 1, 2010 July 1, 2010 1) Basic Rule: HST applied to portion of rental period post June 2010 2) Exception: GST (not HST) if period starts before July 2010 and ends before July 31, 2010 3) Prepayments: 4) i. any period Vendor charges HST on consideration due or paid on or after May 1, 2010 for or portion thereof relating to after June, 2010 5) ii. provincial restricted After October 14, 2009 and before May 1, 2010: purchaser self-assesses 8% component if not acquired for exclusive use in commercial activities, or if ITCs © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 41

HST Transitional Rules - Services Also includes (non-lifetime) memberships and admissions Services performed after June 30, 2010: HST applies (exception if 90% of service performed before July 1, 2010) April 1, 2010 July 1, 2010 October 31, 2010 Cleaning Services GST HST * Invoice HST applies to portion of service performed after June 2010 © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 42

HST Transitional Rules - Services Exception: No HST if “all or substantially all” (90%) of service performed before July 1, 2010 August 1, 2010 April 1, 2010 July 1, 2010 Cleaning Services GST * Invoice GST only on entire invoice © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 43

HST Transitional Rules - Services Performed Oct 14, 2009 May 1, 2010 July 1, 2010 1) Basic Rule: focus on when services are performed 2) Special Rule: If ≥ 90% performed before July 2010, GST (not HST) applies 3) Prepayments: 4) i. for services Vendor charges HST on consideration billed or paid on or after May 1, 2010 performed after June 2010 5) ii. provincial restricted After October 14, 2009 and before May 1, 2010: purchaser self-assesses 8% component if not acquired for exclusive use in commercial activities, or if ITCs © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 44

Non-Residential Real Property Contracts Progress Payments Contract to construct, renovate, etc. real property: HST applies to progress payments to extent reasonably attributable to property delivered / services performed after June 2010 Exception to general rule for collection of HST on prepayments: If progress payments for post-June 2010 work are due or paid after October 14, 2009 and before July 1, 2010: supplier must charge HST © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 45

HST Transitional Rules – Intangible Property Intellectual property; contractual rights E. g. software licence for 2010 due on January 1, 2010 ORST applies to 50% (January through June); vendor should collect PST on only 50% of charge Library that is licensee required to self-assess 8% provincial component of HST for remaining 6 months (if not entitled to recover full ITCs) Library entitled to claim rebate for provincial component © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 46

HST Transitional Rules – Intangible Property E. g. software licence for May 1, 2010 – April 30, 2011 due on May 1, 2010 Licensor should collect ORST on 2/12 th of charge, and HST on 10/12 ths No self-assessment requirement – HST has been pre-paid © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 47

HST Transitional Rules – Services, Intangibles Libraries that pay annual contracts before May 2010 E. g. cleaning, maintenance, HVAC Service provider should charge GST only Service provider should not charge any HST Library required to self-assess 8% provincial component (because cannot recover full input tax credits) Library claims rebate (78% if municipality) for provincial component self-assessed © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 48

Self-Assessment Calculation Example: $10, 000 building maintenance contract, April 1 2010 – March 31, 2011, paid April 1, 2010 Supplier charges 5% GST on entire amount ($500) Supplier does not charge PST or HST on any portion of contract Library self-assesses $10, 000 x (9/12) x 8% = $600 78% municipalities rebate = $600 x 78% = $468 Offset rebate against tax self-assessed; net to remit = $132 © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 49

HST Transitional Rules – “Continuous Supplies” Includes property or services supplied by means of Wire, pipeline or similar conduit Satellite or other telecommunications facility Examples Natural gas, Electricity Cable television, Satellite television Cellular telephone services Vendor collects HST on that part of the supply that reasonable relates to post-June 30, 2010 Alternative: consideration pro-rated by number of days in billing period © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 50

Self-Assessed HST – Timing of Remittance Pre-collected HST remitted in “stages” 5% GST component remitted in GST return for reporting period during which collected 8% provincial component remitted in HST return for reporting period that includes July 1, 2010 (due August 31, 2010 or October 31, 2010) Same principle for rebate claims for HST i. e. claim rebate for 5% GST component first, and rebate for 8% provincial component in claim for period that includes July 1, 2010 © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 51

HST Transitional Rules – Considerations Is system prepared to start charging and paying proper amount of tax on May 1, 2010 taking into account: Nature of supply Place of supply (rules not yet released) Transitional rules Point of sale rebates Is system prepared to start self-assessing provincial component of HST for pre-payments before May 1, 2010? Can invoicing/payables system deal with GST, HST and PST? Is the system taking into account self-assessments? Are suppliers charging PST in error on prepayments? Should a refund claim be filed for PST paid in error? © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 52

Transitional Tips and Traps Annual contracts subject to PST (e. g. software maintenance) paid before May 1, 2010: did supplier charge PST on post-June period? If so, apply for refund for 6 months’ portion Even if PST was charged in error and refund applied for, library must self-assess the 8% provincial component of HST Keep file of copies of supplier invoices straddling implementation; double-check in September/October for self-assessment and refunds of PST over-charged © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 53

Importations © 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 54

HST and Goods Imported into Ontario Affects libraries and other PSBs Self-assessment of Ontario component of HST may be required on international / interprovincial importations Only 5% GST to be collected at international border Generally, self-assessment required where full ITC not recoverable had HST been paid on input (affects PSBs) Watch out for services not previously subject to PST, e. g. electricity Also applies to prepayments for goods/services to be delivered after June 30, 2010 Self-assessment of full 13% may be required on imported services © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 55

Planning Points – Purchases, Sales, Cash Flow © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 56

HST – General Planning Points Conduct impact analysis to estimate net cost to organization and changes to funding requirements Plan for modifications to tax codes in systems Review impact on long-term contracts and consider options for renegotiation Consider deferring purchases of PST-taxable items (computer systems, administrative equipment, furnishings) – take advantage of post-June 30 rebates Accelerate purchases of PST-exempt items (custom software) to avoid additional 8% cost (before rebates) Ensure consultants’ and professional fees are invoiced by June 30, 2010 (subject to transitional rules) © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 57

Planning – Purchases Cash flow implications: tax charged by many suppliers will increase by 8%; partly or fully recoverable by rebates but must be funded Lease (as lessee) of real property Purchases of real property Maintenance and repairs to real property Signs Custom-written software Professional services (accounting, property management, security, services related to real property) © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 58

Planning – Purchases Lease instead of purchase before July 2010 Reduces PST burden from 8% of full purchase price to 8% of lease payments Improves cash flow © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 59

Planning – Capital Projects Long-term capital project straddling July 1, 2010 Entered into pre-announcement date Contract price reflects 8% Ontario PST cost to contractor of materials used in contract Renegotiate contract to obtain benefit of elimination of PST (8% of materials burden? 2% of overall contract price? ) after June 30, 2010 © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 60

Planning – Capital Projects Review existing tax clauses e. g. “Any decrease in costs to Contractor due to changes in taxes after bid closing shall decrease the Contract Price accordingly” Post-implementation If contract price is “inclusive of all taxes except Value-Added Taxes”, is definition of “Value-Added Taxes” broad enough to include HST? If not, consider amendment to contract © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 61

Planning – Capital Projects Review to see if tax-inclusive or tax-extra Which is more beneficial? Contracts that straddle implementation Revisit where opportunities exist, clarify wording Review tax clauses Consider effect on damages / termination payments: if taxinclusive, need to be grossed up to account for additional 8% Is rate of tax charged correct according to “place of supply” rules? © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 62

Planning for Implementation – Processes and Procedures © 2009 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. 63

Planning for Implementation – Processes and Procedures Systems update to accommodate singe tax return Templates need updating – expense reports, matrices Systems testing needed after implementation Training Record retention © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 64

Planning for Implementation – Processes and Procedures Establish an implementation committee Consider impact on: Budgets, revenues, cash flow Sales, purchasing and other systems Documentation Pricing strategies Consider implementing Internal communications strategy Internal learning strategy © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 65

Planning for Implementation – Processes and Procedures Incorporate into budgeting process Review existing contracts: Sharing of any PST savings? Adding Ontario HST references Government contracts New contracts and bids Review provisions for damages / termination payments © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 66

Planning for Implementation – Processes and Procedures Sales (POS, Billing and A/R Systems) Do tax coding and invoices need to be adjusted to take into consideration different rates of tax: 5%, 13%? Does the current ORST rate need to remain in the system for a transitional period to take into consideration adjustments post implementation? © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 67

Planning for Implementation – Processes and Procedures Purchases (AP systems) System must be capable of handling different rebate percentages for federal vs. provincial component of HST Critical for book purchases: Programming required to track provincial component of HST (point-of-sale rebate for 8%) vs. federal component (post-sale rebate for 5%) Ensure that federal book rebate claimed for 5% only, not 13%! Ensure that federal and provincial rebates claimed for other qualifying expenses at appropriate rates Employee expense reports templates will need modification Current process to self-assess ORST needs to be amended; some self -assessment of Ontario component of HST likely required © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 68

Planning for Implementation – Processes and Procedures Other Preparation Customer literature? Website information? Pricing information? Customer/Landlord/Tenant communication? How to approach suppliers, contractors: responsibility? © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 69

Last Look at PST © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 70

As The Curtain Rings Down on the PST. . . Last chance to apply for refunds Audits, Assessments 4 -year window When will they stop auditing PST? Recent appeal of TTC case by Ontario: not giving up easily © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 71

HST Links KPMG http: //www. kpmg. ca/en/ms/pstgst/ Ontario Ministry of Revenue http: //www. rev. gov. on. ca/en/taxchange/index. html Draft provincial legislation and other official documents http: //www. fin. gov. on. ca/en/index. html © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 72

Presenter’s contact details Barbara Warren KPMG LLP (416) 777 -3541 bwarren@kpmg. ca www. kpmg. ca Information is current to February 19, 2010. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. © 2010 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 73