Harmonized Sales Tax

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The Harmonized Sales Tax (HST) is the name used in Canada to describe the combination of the federal Goods and Services Tax (GST) and the regional Provincial Sales Tax (PST) into a single value added sales tax[1] in five of the ten Canadian provinces: Ontario, New Brunswick, Newfoundland and Labrador, British Columbia and Nova Scotia. The HST is collected by the Canada Revenue Agency, which remits the appropriate amounts to the participating provinces. The HST may differ across these five provinces, as each province will set its own PST rates within the HST.

The introduction of the HST changes the PST for these provinces from a cascading tax system, which has been abandoned by most economies throughout the world,[2][3] to a value added tax like the GST.

To maintain the progressive nature of total taxes on individuals, the Canadian government (for the GST) and the four provincial governments have accompanied the change from a cascading tax to a value-add tax with a reduction in income taxes, and instituted direct transfer payments (refundable tax credits) to lower-income groups, resulting in lower tax burdens on the poor.[4][5] The federal government provides a refundable "GST Credit" of up to $248 per adult and $130 per child to low income people for 2009-10.[6] Provinces offer similar adjustments, such as Newfoundland and Labrador providing a refundable tax credit of up to $40 per adult and $60 for each child. British Columbia’s low income credit is mailed out to 1.1 million British Columbians every three months and amounts to up to $230 annually per individual.

Most economists support the change from a cascade tax to a value added tax [7][8][9] and studies have shown that the national and provincial governments have succeeded in keeping the change to a value added tax revenue neutral.[2][10][11][12] However, in some places it has shown to be unpopular with the general public, as shown in the British Columbia sales tax referendum, 2011 which ultimately decided that the HST should be reverted back to the GST/PST system.[13]

Contents

[edit] Background

In 1996, three Atlantic provinces — New Brunswick, Newfoundland and Labrador, and Nova Scotia — worked with the federal government to implement a Harmonized Sales Tax and lower the sales tax portion to eight percent. The result was a 15% combined tax when the federal rate of seven percent was added. The new tax went into effect on April 1, 1997. The HST is collected by the Canada Revenue Agency, which then remits the appropriate amounts to the participating provinces. On 1 July 2006, the GST was lowered to 6%,[14] resulting in a combined HST of 14%, and again lowered on 1 January 2008 to 5%,[15] resulting in a combined HST of 13%. On April 6, 2010, the Nova Scotia government raised the provincial portion of the HST, restoring the overall rate to 15% effective July 1, 2010.[16]

The implementation in eastern provinces demonstrated that consumer prices fall after the change to a harmonized sales tax.[2] The Martin task force found that “in Atlantic Canada prices on goods fell when they harmonized the sales tax.”[17]

In British Columbia and Ontario, the HST replaced the PST and GST on 1 July 2010.[3][7] Evidence from numerous studies shows that harmonization raises business investment and that PST-type taxes slow down provincial growth.[2] British Columbia combined the 5% GST with the 7% PST and implemented the HST at a rate of 12 per cent. The B.C. government committed to lowering the HST by two points, to 10%, by 2014.[18] Ontario’s HST rate is 13%. BC voted to repeal the HST and return to the PST and GST in August 2011.

The Conservative government's 2008 budget called sales tax harmonization "the single most important step provinces with retail sales taxes could take to improve the competitiveness of Canadian businesses."[19]

[edit] Developments in 2010, 2011 for Ontario and British Columbia

The HST was introduced on July 1, 2010 in the provinces of Ontario and British Columbia. Polls show that 82% of British Columbians and 74% of Ontarians opposed it[20] before it was implemented.

On March 26, 2009 in its annual budget, the province of Ontario announced its intention to merge the PST and GST to take effect on July 1, 2010.[21]

The sales tax in British Columbia was also restructured, merging the PST with the GST, effective July 1, 2010.[22]

The tax attempts to build a more efficient tax system while not increasing sales tax revenues.[2] Ontario will provide a refundable tax credit of up to $260 per adult or child for 2010-11 to low income people,[23] and British Columbia will provide a refundable tax credit of up to $230 per adult or child for 2010-11.[24] The federal and provincial tax credits are paid quarterly through the year. British Columbia will also mail out a onetime transition payment of $175 to low and modest income seniors as well as $175 for each child under 18 to every family with children. [24]

On May 4, 2011, an independent panel commissioned by the BC government released a report on the impact of the HST in BC. The report concluded that "Unless you are among the 15 per cent of families with an income under $10,000 a year, you’re paying more sales tax under the HST than you would under the PST/GST: On average about $350 per family."[25]

The report also predicted that by 2020, the HST is anticipated to result in a BC economy that will "Be $2.5 billion larger than it would be under the PST. That’s about $480 per person or $830 per family."[25]

[edit] Affected items

  • In Ontario the HST will increase tax on gasoline and diesel from 5% to 13%.[26]
  • In British Columbia, the HST will apply on motor fuel and diesel but the 7% provincial portion will be refunded at the point of sale, meaning the effective tax will remain at 5%, the rate of the GST.[24]
  • PST was only applicable to goods, whereas HST is generally applicable to both goods and services. Service items from haircuts to carpet cleaning that previously include only the five per cent GST saw an increase in costs.[27] However, in Ontario the PST portion of the HST will be exempt on newspapers and fast food items not exceeding $4 per purchase.[21]
  • In Ontario, a rebate compensating for the HST will leave the first $400,000 of a new home purchase unaffected whereas the portion of a home above $400,000 will be charged the full HST. However, buyers of new homes will receive a rebate of up to $24,000 regardless of the price of the new home.[28]
  • For Ontarians HST will not be charged on the resale of an existing home, however renovations are taxable.[29]
  • Ontarians will pay more for management and other fees associated with investment funds, such at: mutual funds, segregated funds and ETFs.

[edit] Exemptions

  • Both provinces made such household goods as children's clothing and shoes, car seats, diapers and feminine hygiene products HST exempt.[30]
  • In British Columbia, the HST will not extend to local public transit fares, BC Ferries tickets, or bridge and road tolls.[24]
  • In Ontario, First Nations status card holders are exempt from the provincial part of the HST for eligible off-reserve purchases. This exemption is in addition to the relief provided to First Nations under the GST/HST framework, such as for purchases on a reserve or delivered to a reserve. It is also in addition to point-of-sale rebates offered to all Ontarians on items such as books or children's clothing.[31]

[edit] Reception

A study, conducted by the CD Howe Institute before announcements to exempt low value purchases, found B.C. and Ontario's HST likely revenue neutral.[2] A separate report from the Roger Martin task force on the economy found the HST would lower taxes overall as “increased revenue from the harmonized sales tax is matched by reductions in corporate and personal taxes and by tax credits. The effect is revenue loss.” The Globe and Mail reporting on the study found that the "Ontario government will actually lose revenue."[11] In a report by David Murrell, Ph. D, Senior Fellow at the Canadian Centre for Policy Studies, the net impact of the tax was expected to be "modestly progressive" for the poorest households to upper-middle class families while increasing taxes by $320 in British Columbia and $290 in Ontario.[32][33]

Public opinion however holds negative feelings towards the HST with an Ipsos Reid poll showing vast majority of British Columbians (82%) and Ontarians (74%) oppose their provincial government’s plans to harmonize the sales tax.[20] Only 39% of the public believes the HST would be beneficial for businesses whereas the Task Force on Competitiveness, Productivity and Economic Progress found costs will decrease for small business as they recover sales taxes they have to pay on goods and services they purchase and will lower their administrative costs.[17] Additionally, only 10% of the public agree that the move will help to create more jobs. A study by Jack Mintz of the University of Calgary School of Public Policy found that the HST will create almost 600,000 new jobs over the next ten years.[34]

Former B.C. Premier Bill Vander Zalm launched a petition against the HST in British Columbia. On August 11, 2010, Elections BC informed him [35] that the campaign had succeeded in collecting the signatures of more than 10% of registered voters in each of the province's 85 ridings by 5 July 2010.[36] The success of the petition could require the provincial government to hold a referendum on the tax. Elections BC was expected to make a formal announcement but they declined to do so and have chosen not to move forward in the process until the courts have decided on a case, brought by local business groups, challenging the petition.[35] On Monday, July 5, 2010, Bill Vander Zalm, Chis Delaney and Bill Tieleman announced that they had launched their own lawsuit, a constitutional challenge against the HST because it was never passed into law by the British Columbia's provincial legislature.[37] On August 20, 2010, Chief Justice Robert J. Bauman ruled a petition opposing British Columbia's controversial harmonized sales tax was valid. This decision will result in sending the issue back to the provincial legislature. Bauman said Elections BC was correct when it approved the petition on August 11.[38]

[edit] Rejection in B.C.

The approval of the petition to recall the HST in British Columbia paved the way for a referendum that allowed British Columbians to decide the fate of the tax system. Elections BC conducted the referendum via mail-in ballot, allowing registered voters to send in their decision in regards to the HST. The British Columbia sales tax referendum, 2011 was conducted throughout June and July 2011.

The Question on the ballot was: Are you in favour of extinguishing the HST (Harmonized Sales Tax) and reinstating the PST (Provincial Sales Tax) in conjunction with the GST (Goods and Services Tax)? Yes or No [39]

The ruling BC Liberals had campaigned in favour of the HST since its introduction the previous year, noting it would be too costly to return to the original GST/PST system. In April 2011, British Columbia Premier Christy Clark, announced a province-wide engagement initiative to listen to British Columbians' suggestions to "fix" the HST. [40]

In May 2011, the Minister of Finance Kevin Falcon announced that if British Columbians vote to keep the HST the rate will drop by 1 % on July 1, 2012 and another point in 2014. This will bring the overall rate to 10%. The Government also committed to mailing onetime transition payments of $175 per child to families with children and $175 for low and middle income seniors. [41] A month later, the federal government passed legislation to "formalize and give legal force to the reductions in the rate of the provincial component of the HST in British Columbia". [42]

On August 26th, 2011, the results of the referendum were revealed by Elections BC, with 55% of 1.6 million voters in favour of abolishing the HST. The BC Liberals revealed a plan to re-instate the GST/PST system within 18 months, with a target date of March 31st, 2013.[43]

[edit] See also

[edit] References

  1. ^ "What is HST?". Canada Revenue Agency. http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/gnrl/hst-tvh/wrks-eng.html. Retrieved 2009-03-26. 
  2. ^ a b c d e f Harmonized tax badly needed and likely revenue-neutral C.D. Howe Institute
  3. ^ a b Coyle: Despite Tory roars, HST here to stay The Toronto Star
  4. ^ The HST: Overcoming fears and misconceptions, Vancouver Sun August 31, 2009 http://communities.canada.com/vancouversun/print.aspx?postid=491641
  5. ^ Not a Tax Grab After All, Canadian Centre for Policy Alternatives http://www.policyalternatives.ca/sites/default/files/uploads/publications/reports/docs/Not_a_Tax_Grab_After_All.pdf
  6. ^ Canada Revenue Agency, GST/HST Credit Guide
  7. ^ a b The road to create a single tax in Ontario Canwest News Service
  8. ^ Smart money is on Manitoba getting HST Winnipeg Free Press
  9. ^ Ontario passes HST legislation National Post
  10. ^ HST won't hurt much The Toronto Star. Retrieved 2009-12-14.
  11. ^ a b 10 simple HST myths The Globe and Mail
  12. ^ Shuswap News. Retrieved 2010-09-16.
  13. ^ British Columbians kill the HST with 54-per-cent referendum vote
  14. ^ "Helping Individuals and Families". 2006 Budget. Department of Finance Canada. http://www.fin.gc.ca/budget06/pamph/pahelp-eng.asp. Retrieved 2009-03-26. 
  15. ^ Ferguson, Rob (2008-01-01). "One last trim: 5% GST kicks in". The Toronto Star. http://www.thestar.com/News/Canada/article/290192. Retrieved 2009-03-26. 
  16. ^ HST increased
  17. ^ a b Task Force Releases Eighth Annual Report Roger L. Martin, Task Force on Competitiveness, Productivity and Economic Progress
  18. ^ "HST legislated at 10 per cent". 100 Mile Free Press. 2011-05-08. http://www.bclocalnews.com/bc_cariboo/100milefreepress/news/123414523.html. 
  19. ^ Silver, Robert (2009-09-16). "Harper's HST revisionism". Toronto: The Globe and Mail. http://www.theglobeandmail.com/news/politics/silver-powers/harpers-hst-revisionism/article1289702/. 
  20. ^ a b Poll: 90% in B.C. and Ontario say HST is a government tax grab Vancouverite News Service
  21. ^ a b "2009 Ontario Budget". Ontario Ministry of Finance. 2009-03-26. http://www.fin.gov.on.ca/english/budget/ontariobudgets/2009. Retrieved 2009-03-26. 
  22. ^ "HARMONIZED SALES TAX TO BOOST INVESTMENT, JOB CREATION". British Columbia Government News Releases. 2009-07-23. http://www2.news.gov.bc.ca/news_releases_2009-2013/2009PREM0017-000141.htm. Retrieved 2009-07-23. 
  23. ^ Ontario Ministry of Revenue, Ontario Sales Tax Credit
  24. ^ a b c d BC Government HST Blog
  25. ^ a b [1]
  26. ^ What's Taxable Under the HST and What's Not?, Ministry of Revenue. Accessed May 28, 2010.
  27. ^ B.C. to harmonize provincial sales tax and GST CTV News
  28. ^ http://www.rev.gov.on.ca/en/notices/hst/pdf/02.pdf
  29. ^ http://www.getsmarteraboutmoney.ca/tools_and_calculators/feature-articles/Pages/how-will-hst-impact-ontarians.aspx
  30. ^ Ontario strikes populist note to soften the HST blow The Globe and Mail
  31. ^ Point-of-Sale Exemption for First Nations, Ministry of Revenue. Accessed February 3, 2011.
  32. ^ Bostelaar, Robert (2010-08-19). "Taxpayers will see costs from HST, says think tank". The Vancouver Sun. http://www.vancouversun.com/news/canada/Taxpayers+will+costs+from+says+think+tank/3421897/story.html. 
  33. ^ Murrell, David (2010-08-25). "Impact of HST on Ontario and British Columbia households by income Quintiles". Canadian Taxpayers Federation. http://www.taxpayer.com/british-columbia/impact-hst-ontario-and-british-columbia-households-income-quintiles. 
  34. ^ Ontario's bold move to create jobs and growth Jack Mintz, The School of Public Policy
  35. ^ a b Shreck, David (2010-08-11). "Elections BC's Bizarre Decision on HST". The Tyee. http://thetyee.ca/News/2010/08/12/BizarreHSTDecision/. 
  36. ^ "Vander Zalm's anti-HST petition hits Vancouver". CBC News. 2010-04-06. http://www.cbc.ca/consumer/story/2010/04/06/bc-vancouver-hst-campaign-vander-zalm.html. 
  37. ^ "Anti-HST team launches constitutional challenge". CBC News. 2010-07-05. http://www.cbc.ca/canada/british-columbia/story/2010/07/05/bc-fight-hst-court-announcement.html. 
  38. ^ HST petition can proceed, B.C. judge rules. BCTV News. Retrieved Aug20,2010. A referendum to determine the fate of BC's HST was called for September 24, 2011.
  39. ^ "Elections BC HST Referendum Homepage". http://www.elections.bc.ca/index.php/referenda-recall-initiative/hst-2011/. 
  40. ^ "British Columbia government launches public consultation process for HST". Journal of Commerce. 2011-04-20. http://www.joconl.ca/article/id43977. 
  41. ^ "HST legislated at 10 per cent". 100 Mile Free Press. 2011-05-08. http://www.bclocalnews.com/bc_cariboo/100milefreepress/news/123414523.html. 
  42. ^ "Feds amend law to allow B.C. to cut HST by 2 per cent". Global TV. 2011-06-09. http://www.globalsaskatoon.com/Feds+amend+allow+cent/4927935/story.html. 
  43. ^ Bailey, Ian (2011-08-26). "B.C. rejects HST in landmark referendum". The Globe and Mail (Toronto). http://www.theglobeandmail.com/news/national/british-columbia/bc-politics/bc-rejects-hst-in-landmark-referendum/article2143576/?from=sec431. 

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