VISUAL NEWSLETTER – JAN 2005           




Provincial Sales Tax in Ontario remains a convoluted mess designed, it seems, to keep a vast army of auditors employed. Computer Sales and Services, in particular, have come under the watchful eye of these auditors. This is an area that can cost companies a lot of money, if they are unfamiliar with the rules and regulations. In a Ministry of Finance   newsletter dated Sept. 2004 the government clarified its position on the taxability of various computer related sales and services.


Generally all computers, printers, accessories and off the shelf computer programs are RST taxable. The only exception to this is for computers and software directly involved in the manufacturing process. If a computer is purchased to handle accounting and such it would be taxable. If the computer was used to monitor production on a manufacturing line it would be non-taxable. In this case, a company could process a refund claim for RST paid. You may also file a Purchase Exemption Certificate with your supplier to save the tax.


Since most computers and retail software is taxable, the government deems that related services required to render the product operational are also taxable. For this reason items on an invoice utilizing any of the following words are usually deemed as taxable as well: Installed, Configured, Modified, Repaired, Upgraded, Serviced, Etc.


Any form of service contract where at least 10% of the price of the contract would be deemed taxable renders the entire contract taxable. Some form of definition of services is a good thing to keep on file in this case.


As mentioned, modifications to taxable programs are usually deemed taxable. The exception to this where cumulative modifications to a program exceed its original cost. It then becomes RST non-taxable.




The following list of computer related services are Ontario RST exempt:


-         Training with respect to the use of a computer or computer program.


-         Advising users of a computer program whether on-site or over the telephone, by e-mail, fax or other communication.


-         Performing activities related to the management or repair of user data.


-         Project planning, discussions, analysis and specifications, requirements and documentation of findings reports, etc.


-         Testing of computers and programs where no repairs are performed.


-         Custom Written Software, which is software developed from scratch for a specific client.


-         Software Modifications that exceed the cost of the originally taxable product. These programs are then deemed to be Custom Programs from that point onward.


-         If the cost of all modifications to a particular program from July 19, 2002 forward exceed the cost of the original program, all services thereafter to that program are deemed non-taxable.


Submitting Purchase Exemption Certificates should be considered, wherever applicable.


If you have paid RST where you shouldn’t have, you may claim it back on a ‘General Application For Refund Of Retail Sales Tax’ form. For audit purposes Visual Accounting was audited for the period 1998-2002, so that period should be excluded from your audit.