Jul 27 2009 Author: Matthew Kraemer
From Pushor Mitchell LLP
On July 23, 2009 the Province of British Columbia announced its intention to harmonize the 7% Provincial Sales Tax (the "PST") with the Federal Goods and Services Tax (the "GST"). Harmonization will be effective July 1, 2010.
The Harmonized Sales Tax (the "HST") will tax consumers of goods and services at a rate of 12%, which includes a 5% federal component and 7% provincial component.
The announcement follows Ontario's March 2009 announcement to harmonize its sales tax with the GST effective July 1, 2010. The provincial sales taxes of Nova Scotia, New Brunswick and Newfoundland and Labrador have been harmonized with the Federal GST since 1997.
Under the PST regime, businesses are unable to recover PST incurred on goods acquired in the course of commercial activity. Under the HST regime, businesses will be able to recover, through input tax credits, both the federal component and provincial component of the HST when tax is paid on goods or services acquired in the course of carrying on a commercial activity.
The Government of B.C. expects that the savings will be passed along to consumers and looks to the Atlantic Provinces as an example where the savings to businesses from the removal of the hidden sales tax is passed along to consumers.
The PST does not currently apply to most services. Currently, only 5% GST is charged on these services. Under the HST regime, these services will be subject to a 12% rate of tax.
The HST will provide rebates for certain products that are currently exempt from PST, such that no greater tax will be paid once HST applies to these products. Among those products that are currently exempt from provincial sales tax and for which rebates will be provided are:
- Gasoline and diesel motor fuels (including any biofuel components);
- Children's clothing and footwear;
- Children's car seats and booster seats;
- Diapers; and
- Feminine hygiene products.
The taxation of transactions involving real property will also be significantly altered under the HST regime. For instance, the lease of commercial property is currently subject to the GST but not PST. Under the proposed HST regime, it appears that leases of commercial property will be subject to the 12% HST.
New housing is currently subject to 5% GST but not PST, although the 7% PST is already included in the cost of materials to construct the houses. New housing will be subject to the 12% HST. The Government of B.C. has indicated that a partial rebate of the provincial portion of the HST will be available to ensure that new homes of a value up to $400,000 will bear no more tax than under the current provincial sales tax regime. Homes of a value greater than $400,000 will be able to claim a rebate of up to $20,000, which may not entirely offset the increase in tax charged on the sale of such homes. The federal government currently provides a 36% rebate for GST paid on new homes of up to $350,000 in value, no rebate for homes over $450,000 in value. For housing values between $350,000 and $450,000 the rebate declines from 36% to 0%. The federal new housing rebate will continue to be available under the HST regime.
We will provide updates regarding transitional rules for the introduction of HST, particularly with respect to its effect on new homes, when such details become available.