What is a Harmonized Sales Tax?Ontario plans a major tax reform that will combine both the provincial and federal sales tax on products and services. The combined tax of five per cent GST and eight per cent Ontario sales tax won't change the price on most items. But many items that used to be exempt from sales tax will no longer be so.
What is no longer PST exempt?Consumers are most likely to notice an increase in the price of gasoline and heating fuels. Electricity will no longer be exempt from provincial sales tax, nor will tobacco, personal services like haircuts, membership fees for clubs and gyms, newspapers and magazines, taxi fares and the professional services of lawyers, architects and accountants. Real estate commissions will also be taxed.
Will anything remain exempt?Not a lot. Children's clothing and footwear, children's car seats and car booster seats, books, diapers and feminine hygiene products will remain exempt from the provincial portion of the single sales tax.
Basic groceries, rent, condo fees, prescription drugs, and medical devices remain exempt from both PST and GST.
Purchase of resale homes will remain exempt from PST, although real estate transaction fees will be taxed.
Why is Ontario doing this?The province says implementation of the single sales tax would bring Ontario into line with "what is viewed as the most efficient form of sales taxation around the world." The finance ministry says the single sales tax would reduce the cost of goods that Ontario exports, making the province more competitive and boosting a sector of the economy that has been particularly hard hit by the economic downturn.
At the moment, businesses may not deduct the PST from the cost of materials and other products they buy; instead, they pass the cost along to consumers. But under harmonization, businesses may claim tax credits for those purchases, which some estimates suggest could save them $3-billion a year.
The Ontario Chamber of Commerce believes a fully blended system would cost consumers approximately $905 million in additional sales taxes per year, while the GST and PST bill for companies would fall by $1.6 billion annually.
The Canadian Federation of Independent Businesses says harmonization will save business $100 million a year in reduced red tape.
Businesses will save a further $500-million a year on the costs of administering a single tax instead of two, according to the budget documents.
Are all businesses on side?Contractors, developers and homebuilders oppose the blending. Ontario's Building Industry and Land Development Association estimates that a blended tax would add more than $46,000 to the price of a $580,000 new home in Toronto.
Will household expenses rise?Yes, although the province says it will offer $10.6 billion worth of tax relief over the next three years:
- Cash payments of up to $1,000 for in 2010 and 2011 for families earning less than $160,000 a year.
- A new permanent $260 refundable sales tax credit for low to middle-income adults and children.
- An enhanced refundable property tax credit for low and middle-income homeowners and tenants.
- New homes under $400,000 would be exempt from the new blended tax.
- $1.1 billion in personal income tax cuts
So what's the problem?The provincial NDP says the single sales tax would leave families "feeling the pinch" from having to spend more on a range of goods at a time that many are already struggling to deal with job losses.
The Conservatives, while ideologically in favour of harmonizing, say this is no time to be raising taxes.
The Ontario Real Estate Association says merging the taxes will add more than $2,000 to the cost of a real estate transaction, hurting the resale home market and prolonging the housing industry's recovery from the economic doldrums.