A recent concluded that consumers will bear the brunt of the Ontario and British Columbia governments' plans to harmonize their provincial sales taxes with the federal goods and services tax.
Businesses will be the big winners, as the combined tax reduces their costs by a total of $6.9-billion in Ontario and British Columbia, said Toronto-Dominion Bank chief economist Don Drummond.
But the tax burden will shift from businesses to consumers as they begin paying levies on a broad range of goods and services that are now exempt, the report said.
The Ontario government announced in March that it plans to combine the 8 per cent provincial sales tax and the 5 per cent goods and services tax into a new value-added tax of 13 per cent.
British Columbia, looking to close a looming tax gap with Ontario, announced plans in July to create a harmonized sales tax of 12 per cent. Both changes will take effect July 1.
Vocal critics, , where the Campbell government has faced , say the merged tax will hurt families because they'll be paying tax on things that are currently not taxed, including haircuts and restaurant meals.
And say investors will pay another $500-million a year in fees once the proposed harmonized tax takes effect. There is currently no provincial tax on mutual funds in any province, while the 5-per-cent GST is already applied and included in fees. A move to include funds in a harmonized tax would mean an extra 8 per cent on management fees in Ontario and 7 per cent in British Columbia.
Canada's also fear a backlash, worried that higher taxes on goods will encourage recession-wary consumers to shut their wallets even tighter.
Newfoundland and Labrador, New Brunswick and Nova Scotia have already implemented the HST. Saskatchewan, Prince Edward Island and Manitoba have not merged their sales taxes and Alberta has no provincial sales tax.
Whether you're from B.C., Ontario, or anywhere in between, whether you're a small business owner, a big business owner or just a regular Canadian consumer trying to keep an eye on your spending, the HST will affect you in one way or another.
What should you know before July 1?
Rod Butcher, certified general accountant, and director of consulting services with Brendan Moore & Associates, is one of the leading commodity tax commentators in Canada. He took reader questions in an online discussion. Thanks to everyone who participated. Please use our comments area to contribute your thoughts.
Rod has over 25 years of experience in both industry and public practice and was co-author of CCH Canadian's publications Value-Added Taxation in Canada and Common Audit Exposures, and a contributor of commentary to CCH Canadian's Ontario Retail Sales Tax.
Lisa: Where can I get a list of consumer products which are EXEMPT from taxes in Ontario? Knowing these items will help me 'adjust' my spending habits & be a bit better off within the constraints of my pension income.
Rod Butcher: The Ontario Ministry of Finance web site, under sales tax harmonization, has a bulletin entitled Tax Benefits for Consumers that lists exempt items and zero-rated items, and those items eligible for point of sale rebates such as books and children's clothing and footwear. http://www.rev.gov.on.ca/en/taxchange/consumers.html B.C. has a similar Bulletin at www.gov.bc.ca/hst/rebates_exemptions.html
Bruce Williamson: I live in Toronto. Nobody seems to be saying how much the HST will cost an average household. Any idea?
Rod Butcher: Bruce - the $64-million question. Studies after harmonization in the Atlantic provinces showed an overall minute reduction in the tax-included cost of goods and services that made up the CPI. Some costs went up (shelter, clothing and footwear, transportation) and some went down (food, household operation, health). Throw in the tax credits and tax reductions, and if you put your faith in politicians and economists, we should be cost neutral.
Paul: In your monthly living expenses, what items will not be taxed at 13 %? For example Gas, Electricity, Home and Auto insurance.
Rod Butcher: Gas and hydro in Ontario will be taxed at 13%. Home insurance will remain taxable at a special 8% rate for Ontario, but auto insurance will remain exempt. B.C. plans to have a rebate in effect to remove the provincial portion of the tax on residential energy costs.
Paul: Will bank account fees be subject to the HST?
Rod Butcher: Charges for general chequing and savings accounts are currently exempt for GST and will remain so for HST.
On Gas Prices: How will the HST affect prices at the pumps?
Rod Butcher: On Ontario, gas will be subject to the 13% at the pumps, but some cost reductions will be realized by the producers and distributors that have expenses incurred in Ontario. Overall, after harmonization out East, transportation costs increased. In B.C., rebates are available at point of sale for the provincial tax charged on gas and diesel - no impact there.