The Globe & Mail Report on Business September 30, 2009
Rod Butcher, certified general accountant and tax expert with Brendan Moore & Associates, took your questions on the harmonized sales tax and consumers, small businesses, investments and more.
A recent TD Economics report concluded that consumers will bear the brunt of the Ontario and British Columbia governments' plans to harmonize their provincial sales taxes with the federal goods and services tax.
Businesses will be the big winners, as the combined tax reduces their costs by a total of $6.9-billion in Ontario and British Columbia, said Toronto-Dominion Bank chief economist Don Drummond.
But the tax burden will shift from businesses to consumers as they begin paying levies on a broad range of goods and services that are now exempt, the report said.
The Ontario government announced in March that it plans to combine the 8 per cent provincial sales tax and the 5 per cent goods and services tax into a new value-added tax of 13 per cent.
British Columbia, looking to close a looming tax gap with Ontario, announced plans in July to create a harmonized sales tax of 12 per cent. Both changes will take effect July 1.
Vocal critics, especially in B.C., where the Campbell government has faced a huge backlash, say the merged tax will hurt families because they'll be paying tax on things that are currently not taxed, including haircuts and restaurant meals.
And mutual fund industry insiders say investors will pay another $500-million a year in fees once the proposed harmonized tax takes effect. There is currently no provincial tax on mutual funds in any province, while the 5-per-cent GST is already applied and included in fees. A move to include funds in a harmonized tax would mean an extra 8 per cent on management fees in Ontario and 7 per cent in British Columbia.
Canada's small businesses owners also fear a backlash, worried that higher taxes on goods will encourage recession-wary consumers to shut their wallets even tighter.
Newfoundland and Labrador, New Brunswick and Nova Scotia have already implemented the HST. Saskatchewan, Prince Edward Island and Manitoba have not merged their sales taxes and Alberta has no provincial sales tax.
Whether you're from B.C., Ontario, or anywhere in between, whether you're a small business owner, a big business owner or just a regular Canadian consumer trying to keep an eye on your spending, the HST will affect you in one way or another.
What should you know before July 1?
Rod Butcher, certified general accountant, and director of consulting services with Brendan Moore & Associates, is one of the leading commodity tax commentators in Canada. He took reader questions in an online discussion. Thanks to everyone who participated. Please use our comments area to contribute your thoughts.
Rod has over 25 years of experience in both industry and public practice and was co-author of CCH Canadian's publications Value-Added Taxation in Canada and Common Audit Exposures, and a contributor of commentary to CCH Canadian's Ontario Retail Sales Tax.