Winnipeg renovation contractor Harold Schlicting not only had no trouble with the July 1 changeover in the federal goods and services tax - his business profited from it.
"A couple of clients asked if I would not prepare the bill until after July 1," says Schlicting, who expects to crack the half-million dollar mark in sales in 2006 for his company, Assured Builders.
GST changeover rules for contractors were difficult for clients to understand, with seven per cent GST charged on installments paid for work in progress prior to July, and six per cent on the final bill, including any deposit (which may have been made before July).
So Schlicting decided to change over in May, and eat the one-per-cent difference himself.
"Clients says, 'Oh, look, savings, honey,' and even though it was only one per cent off the GST, they decided to add more work," he says.
Schlicting estimates he absorbed about $800 in GST - but more than made up for that in additional sales.
But other contractors, homebuilders and suppliers who tried to give their clients a break by forward-dating invoices, as Schlicting was asked to do, should beware.
"Revenue Canada is going to be looking for people who do that," says Beverly Gilbert, a Calgary-based tax consultant for the law firm Borden Ladner Gervais, and a former Revenue Canada employee.
"We will take all necessary measures for the law to be respected," agrees Béatrice Fénelon, a media relations adviser with the Canada Revenue Agency, which is responsible for policing the changeover.
The agency anticipated such avoidance transactions, and will eliminate tax savings from delayed billing or invoices altered primarily to benefit from the tax reduction. Any business that didn't collect the entire seven per cent at the proper time will have to pay the GST themselves - or chase customers.
Businesses are experiencing other fallout from the changeover - including more expenses.
"The changeover was costly because we had to have every cash register changed," says Derek Ford, a Vancouver Island ladies' wear merchant who co-owns eight Touch of Class stores.
His business has three different kinds of registers, which meant three different sets of instructions needed to be sent out. "Inevitably, we realized two or three would (need) technical support," which ranges from $25 to $30 for phone support, to $100 or more for a store visit, plus travelling time, which will be added to the $200 to $300 he spent prior to July 1.
Ford won't be alone. About 40 per cent of small businesses across the country expected to need outside help with the changeover, at an average cost of $500 to $600, says the Canadian Federation of Independent Business (CFIB).
By making the switch on June 30, Ford avoided extra charges for technical support on the long weekend.
The stores were also able to test for accuracy before the long weekend, a wise move, says Gilbert, because it's very difficult for retailers to accommodate till changes on what for many was a busy working day.
She adds the worst-case scenario would be a retailer coming in Tuesday and discovering the till had been set incorrectly and less than six percent had been charged on all sales for the three-day weekend. She had one client who was horrified to discover no sales tax had been added to any purchases over a weekend following a change to a provincial tax rate.
"It will be a few months before we know the absolute impact," says Nancy Hughes Anthony, president and CEO of the Canadian Chamber of Commerce.
Other fall-out experts advise businesses watch for:
* Refunds. When retailers reset tills, refund functions were also set at six per cent GST. For purchases prior to July 1, "refunds will have to be handled manually," says Gilbert. "And whenever that happens, there's room for error."
* Leases and tax-included prices. Businesses are advised to check all long-term agreements such as leases and pre-authorized payments to ensure the tax reduction has been passed on to them.
"Lease payments are generally blended, so leasing companies have to recalculate and reconcile the price," notes Gilbert.
But it may be difficult for businesses to track blended prices. If the price stays the same, is the company pocketing the difference, or using it to offset an intended increase in price? For instance, service stations blend the GST into the price at the pump, and July 1 usually heralds a seasonal increase in price.
* Computerized calculations. Revenue Canada opted for simple, rather than exact, rules governing the changeover, so factors used in streamlined accounting systems may not link perfectly, says Dave Schlesinger, a partner at KPMG, which offers businesses audit, tax and advisory services. It should be checked out in case you underpay and want to avoid an unexpected GST bill, he adds.
* Printed material. Signs, forms, catalogues and web pages all need to reflect the change.
* Employee expenses and allowances. For some allowances and reimbursements, GST depends on the date of payment to the employee and in others, the date the expense was incurred.
An example given by KPMG shows a $1,000 mileage allowance claimed on an expense report submitted and paid in June would have resulted in recovery of a $65 GST credit for the employer.
But if the payment was made in July, the credit would drop to $57. Cleaning up overdue expense reports will minimize the problem, says Schlesinger.
Some of the fall-out, however, is expected to be good.
René Hunderup of Richmond Hill, Ont., expects an uptick in his businesses, both catering to high-end customers.
"I've had several customers who've says they'll be back in July," says Hunderup, a yacht salesman who says the one-per-cent GST reduction is "real money" - $7,000 - to customers buying a $700,000 yacht.
He expects the yacht business, now in its second year, to break $1.5 million in sales in 2006, up from just under half a million in 2005.
But he says the tax cut just reduces the net cost to customers of his other business - Norse Ridge Farms (annual sales $70,000 to 100,000), which trains and boards thoroughbred race horses.
Some of the fall-out will also be bad for customer relations.
CFIB executive vice-president Garth Whyte says inevitably, "there will be some small business owners who will not know about the change."
So long as the businesses remit all GST collected, Revenue Canada will be satisfied, Whyte says, but "customers are going to jump on it.”
The only recourse for these businesses is to urge their complaining customers to apply for a rebate of the overpayment.
Other merchants will have problems because GST is folded into their prices. Businesses can follow the example of some municipalities, such as the City of Calgary, which decided not to adjust signage, parking meters and swim passes, and explained instead the extra cash would be used to offset future price increases, says Gilbert.
And because the change happened so quickly, some businesses that accept prepayment on small purchases, such as magazines, will find it uneconomical to reimburse customers for six month's GST overpayment on a small bill. These businesses may have no choice but to tell customers to apply themselves for a GST rebate.
Whyte is critical of Revenue Canada for not notifying businesses individually. "It showed a lack of respect for those people collecting the tax" on behalf of CRA, he says.
(Sharon Adams can be reached at sharon@businessedge.ca)