Living with HST

It’s been a year now since the Harmonized Sales Tax (HST) came into effect in Ontario and British Columbia. (The combine federal and provincial sales tax was first introduced in the Maritime provinces in 1997.) So how have residents in two of the country’s most populous provinces fared by dishing out extra tax dollars on most of the products and services they pay for?

Consumer goods
The overall intent was to shift the tax burden from businesses, where the tax was buried in the sticker price, to consumers, where it became a very overt consumption tax (i.e. the more you spend – consume – the more tax you pay). A pre-implementation report by TD Bank estimated that consumers “could witness a 0.8-0.9% drop in the pre-tax ticket prices on the purchase of goods and services.” Yet a report by the University of Calgary, commissioned by the Ontario government, found that prices in fact initially went up by the very same 0.9 percent. Asked on the eve of the HST’s anniversary about the taxes’ supposed savings, Ontario Finance Minister Dwight Duncan claimed it is “a bit early” for consumers to expect to see prices to drop.

Real Estate and Home Renovations
Having gutted and remodeled our home last year, I know from first-hand experience that the combined tax added a big bite to renovation bills. The tax not only adds an additional 5 percent to the cost of materials, it also added 13 percent (12 percent in B.C.) to the labour bill that was previously tax-exempt.

The real estate market also saw a surge of sales as buyers tried to close deals before the sales tax rate jumped on new homes, and higher taxes on agent commissions, lawyers fees, home inspections, and other related services kicked in on resale properties. (Though, contrary to what was expected, the market hasn’t tapered off – or crashed – as some predicted it would post-implementation.)
And, as the managing editor of a trade magazine for contractors and custom homebuilders, Renovation Contractor, one thing I constantly hear from readers in Ontario and B.C. is that the tax is costing legitimate tradespeople work and driving it into the hands of guys willing to work for cash. As one contractor recently told me, “HST and the underground economy have been killing us this year.”

Small business and the self-employed
The federal government requires all small businesses to have a GST/HST number if their gross billing exceeds $30,000 a year. That whirring sound – accompanied by the smell of slowly burning paper – you may have detected earlier this spring emanated from accountants’ calculators as they worked in overdrive trying to decipher which invoices and expenses fell under the pre-July 2010 GST-only column, and which were HST-applicable. On the upside, small businesses and low-income earners were eligible for a variety of rebates, including a “transition” payment to help them adapt to the new system.

Political protest
The loudest uproar against the tax was out west, where the B.C. Premier who introduced the tax, Glen Campbell, was forced to resign four months after it came into effect. Back in June, the province started sending out ballots for a binding referendum on whether to keep or kill the tax. The mail-in initiative ends on August 5th, at which point the ballots will be tallied. Even if voters elect to keep the tax in place, it will be lowered to 11 percent in 2012, and 10 percent in 2014.

With Ontario’s provincial election still a few months away (on October 6, 2011), it remains to be seen how much a role the topic of HST will play in the campaign, but it’s safe to say it’ll be a topic voters will want to hear decisive views on. Already, both the Conservatives and NDP have vowed to remove the tax from home energy bills.

Coming soon to a cash register near you
If you happen to live in one of the four provinces (or three territories) that currently don’t have HST, don’t be so smug: The federal government recently set aside $2.2 billion to help grease the wheels of implementation in Quebec. If it passes there, you can almost be certain to see it eventually rolled out nationwide.

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Personal Finance / Taxes

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