Ottawa — Canadians will finally get some relief from the much-despised GST -- but not for another two months.
The Conservative government confirmed yesterday in its first budget that it will cut a host of corporate and personal taxes, and will uphold its campaign pledge to trim the federal sales tax. The goods and services tax will fall to 6 per cent, from 7 per cent, on July 1.
Prime Minister Stephen Harper made the promised GST cut one of the pillars of his recent election campaign, but had not provided a date when it would take effect.
The GST cut is expected to cost Ottawa about $4.35-billion a year but will save somebody buying a $30,000 new car about $300.
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Business groups said they didn't mind a small lag in implementing the GST because companies, particularly retailers, needed time for such things as adjusting cash registers.
"There is a need for some period of preparation," said Nancy Hughes Anthony, president of the Canadian Chamber of Commerce.
But Ms. Hughes Anthony said the two-month lag between yesterday's official announcement and the July 1 implementation target could cause short-term sales slowdowns if consumers delay purchasing big-ticket items such as automobiles.
The government tried to address those concerns with "transitional rules" designed to sort out when the lower rate will apply on purchases that straddle July 1.
The key date for determining the GST rate is the time of invoice. That means that a consumer can expect to pay a 6-per-cent federal consumption tax when receiving a good or service before July 1, if the bill is sent out until after that date. On the other hand, if the invoice is sent before July 1 but the service or good isn't actually received until after that date, the 7-per-cent rate will apply.
For those purchasing new homes during the transition period, the 7-per-cent rate will apply when ownership or possession transfer takes place before July 1.
If the transfer occurs after that date, the rate will be 6 per cent.
The lower rate will also apply if the agreement of purchase and sale is signed after yesterday, the date of the budget.
Those who signed an agreement on or before May 2, however, will be eligible for a transitional adjustment from the federal government that will be equal to the difference in the two GST rates.
Craig Wright, chief economist at Royal Bank of Canada, said some consumers may delay purchases, but that there will be a "payback" in July and August.
The issue of timing the GST implementation is also important to Ottawa. Every month that the government waited to bring in the GST cut brought in an estimated $400-million in revenue.
The Tory government said the cost of the GST cut will also be partly offset by small hikes on excise duties on alcohol and tobacco products.
Those higher rates will also take effect July 1.
The lower GST will also help stem inflation, which will help reduce the government's payouts on pensions and other payments that are tied to prices.
The C.D. Howe Institute said last month that it expects the GST cut will save Ottawa as much as $600-million a year in payments of benefits.
Tax relief
Here are some typical savings families will realize with the GST reduction to 6 per cent.
A family buying a new $200,000 home will save $1,280 in GST.
A family buying $20,000 in furnishings for that home will save $200 in GST
Day of change: July 1
Mark July 1 on your calendar - that's when many of the changes announced in yesterday's federal budget kick in.
- GST is cut to 6 per cent.
- Lowest income tax rate rises to 15.5 per cent from 15 per cent.
- Families begin receiving $100 a month for each child under age 6
Distribution of tax relief
Personal tax*
59%
GST**
33%
Business tax***
8%
*Includes the Right of Permanent Residence Fee and the repeal of the excise tax on jewellery.
**Includes the adjustment to tobacco and alcohol excise levies.
***Includes measures to support Canadian vintners and small brewers.
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