Let me stress from the beginning that I’m not an accountant and as such, this post is only for your entertainment and thought stimulation :-). So ask your accountant for professional help.
Normally, a sizable 13% chunk of the price we’ll pay on the microFIT solar system installation goes to the government coffers. For a $26,000 install, HST is $3,380 resulting in a final bill of $29,380. The good news is that it’s possible to get the HST money back. The bad news: you’ll have to work a little for it.
Basically, HST is an added value tax. Usually, when a manufacturer or merchant buys some goods or services, they pay HST to their suppliers. At their turn, the merchants add HST to the price of what they’re selling. Most of the time, the HST collected from the sales is greater than the HST paid for all the purchases. The difference is government’s money and it has to be remitted to them at regular intervals. If you do the math the HST to be paid to the government is 13% applied to the difference between all the sales and all the purchases, hence the European naming of the similar tax as VAT (Value Added Tax).
This works as described for a regular business, but for our microFIT solar panel installation there is something important to note. The bulk of our costs are at the beginning of the activity, while the income will come in gradually over a long period of time. What this means from the HST standpoint is that we pay a $3380 as HST at install time, and then slowly collect $363 per year in HST from our electricity sales to OPA. Because we collect less HST than we pay in the first year, we will not have to remit any HST to the government. Even better, we will get a cheque for almost all of the HST we initial paid to the solar contractor!
In practical terms, it’s almost the same as if you don’t have to pay HST for your system in the first place! If using borrowed money, you may quickly pay back a part of the loan with the money from your first HST cheque, so you end up paying just $26,000 for my above example.
This money is not totally free, however. The government requires some paperwork to see how you calculate the amount it is owed, so you’ll have to spend a little time to fill the requested forms. From what I’ve read on a forum, for a simple thing as a solar system it may take 10 minutes. But you’ll have to keep your books in order and remit the required paperwork and HST money in time, because mistakes may be costly. Or, if you like such tasks as much as a root canal, better ask your accountant to do it on your behalf and be prepared to pay the price.
If you want to get the HST money I would recommend the following steps:
- read and understand the information on the CRA GST/HST page, and especially the HST guide
- set an appointment to your accountant, because you’ll probably want some professional advice. Usually only businesses register for HST, but it’s possible for a simple person to register if they want. Also keep in mind that you are not required to register for HST (only businesses or persons with sales larger than $30,000/quarter are), but instead you want to do it.
- decide if you want to do the HST reporting yearly or quarterly (more work to do in the future, but you get your refund cheque quicker). It may be even possible to have quarterly reports in the until you get your refund and then switch to yearly reporting. Ask your accountant!
- decide if you want to file the HST returns yourself, or ask your accountant to do it for you (he may charge you for this, so ask first!)
- register for HST on the CRA website
- inform OPA that you are registered for HST, so they know to add HST on the microFIT electricity generation invoices
Your first HST return will be the one where you will get a government refund and as a result they want to make sure you know the rules. The HST guide indicates that this also means that your first return will be audited, so keep you books in order!
In the end, by registering for HST your cashflow and ROI will improve significantly. In my opinion this overcomes the small price of regularly filing the HST return.