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.
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.
