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Alcohol, restaurant meals and fitness memberships are among the little luxuries you’ll be paying more for under the HST (also electricity, gas and home repairs). CHARLA JONES/THE GLOBE AND MAIL
Alcohol, restaurant meals and fitness memberships are among the little luxuries you’ll be paying more for under the HST (also electricity, gas and home repairs). CHARLA JONES/THE GLOBE AND MAIL

Tax

What the HST will cost you Add to ...



What is it?

By now, it's likely you've heard about this thing called the Harmonized Sales Tax (HST).

The HST already exists in the Atlantic provinces of New Brunswick, Newfoundland and Nova Scotia, and will be introduced in Ontario and British Columbia on July 1, 2010. The rate will be 13 per cent in Ontario and 12 per cent in B.C.

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In effect, the HST is a combination of the federal Goods and Services Tax (GST) and the provincial sales taxes in the provinces where it applies.

It is a single sales tax that replaces the provincial sales taxes in the provinces mentioned. The HST is collected by the Canada Revenue Agency, which then remits to the appropriate province a share of the taxes collected.

Why implement it?

Provincial sales tax (PST) is charged on many purchases made by businesses engaged in manufacturing goods and providing services.

These businesses can't recover that PST, and it applies at every step in the production, distribution and retail process - making it a tax on a tax on a tax.

The end consumer is the one who bears the ultimate cost of the PST.

Want an example? Suppose you buy a suit jacket. The company that creates the fabric will pay PST on the raw materials. That company can't recover this PST, so it passes it along to the manufacturer of the suit jacket in the form of higher prices. In turn, that manufacturer passes that cost along to you, the consumer.

In the end, you pay GST on the jacket, PST on the jacket, plus the cost of the PST embedded along the way.

How will it affect me?

With the HST, manufacturers will be entitled to recover the PST that they could not recover before. The end result is supposed to be lower costs to the manufacturer, and ultimately lower prices to you.

While you're going to see the new HST on many point-of-sale receipts and invoices, the fact is that 83 per cent of goods and services in Ontario won't face a change in the amount of tax levied (in B.C., it is about 80 per cent).

There will, however, be 17 per cent of goods and services that will face higher sales taxes under the new HST in Ontario (and about 20 per cent in B.C.).

What specifically are these goods and services? The list is different for Ontario and B.C.

The following goods and services will have changes in the rate of tax charged on July 1, when the HST is introduced.

Food, drink, smokes

Alcoholic beverages

Tobacco products

Vitamins

B.C. only

Snack foods

Restaurant meals

Over-the-counter medications

Food-producing plants

At home

Real-estate commissions

Residential electricity and heating

Landscaping, lawn care, snow removal and house cleaning

Repair or maintenance services (e.g. plumber, electrician)

Ontario only

Internet access services

B.C. only

Basic cable television

Local residential phone

Appliance repairs

Household moving services

Interior design services

Around the house

Magazines by subscription

Ontario only

Private resale of vehicles

Gasoline/diesel

New homes over $400,000

B.C. only

Newspapers

First-aid kits

Most smoke detectors

New homes over $525,000

Disposable diapers

Professional help

Dry cleaning

Massage therapy

Funeral services

Hairstylist or barber

Esthetician services

Accounting services

Ontario only

Legal services

B.C. only

Shoe repair

Tailoring

Wedding planning services

Veterinarian services

Sports and arts

Fitness trainer

Gym and athletic memberships

Fitness lessons

Golf clubs

Ontario only

Green fees for golf

Tickets for live theatre (venues of 3,200 seats or less)

B.C. only

Professional sporting events

Movie tickets

Golf memberships, driving-range fees

Safety helmets for sports

Bicycles

Tickets to live theatre and music concerts

Admission to museums and art galleries

Music and video downloads

Travel

Hotel rooms

Taxis

Camping sites

Domestic air, rail and bus travel originating in province

What types of goods and services are exempt from the HST? Quite simply, those things that have been exempt from the GST prior to July 1, 2010 are generally also exempt from the HST.

In Ontario, the list of exempt items includes:

Basic groceries

Municipal water

Municipal public transit

Some international travel originating in Ontario

Auto insurance

Previously occupied homes

Most medical services

Prescription drugs

Music lessons

Condo fees

Residential rents

Child-care services

Legal aid

Mortgage interest

Most financial services

In British Columbia, the list of exempt items includes:

Basic groceries

Municipal water

Home insurance

Municipal public transit

Some international travel originating in B.C.

Auto insurance

Previously occupied homes

Most medical services

Prescription drugs

Condo fees

Long term residential accommodation

Child-care services

Music lessons

Legal aid

Mortgage interest

Most financial services

In addition, the following items - although subject to the federal portion of HST (5%) - are exempt from the provincial portion of the HST:

Ontario

Books and printed newspapers

Prepared foods under $4.00

Children's clothing

Children's footwear

Child car seats and booster seats

Diapers

Feminine hygiene products

B.C.

Books

Children's clothing

Children's footwear

Child car seats and booster seats

Diapers

Feminine hygiene products

International air travel to the U.S., originating in B.C.

Gasoline/diesel

Special to The Globe and Mail

Tim Cestnick is managing director at WaterStreet Family Wealth Counsel and author of 101 Tax Secrets for Canadians.

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