Dateline Victoria: Even though the year is only ½ over our provincial and federal governments have been acclaimed as co-winners of the most depressing news headline of 2009 with the announcement: “B.C. moves to 12 per cent HST.” It was hoped that the private sector would challenge for the title this year. “Canucks Still Don’t Win the Cup”, “Lions Still Don’t Win the Cup”, and “Forest Industry in 40th year of its Current Downturn” were all considered strong contenders. The HST headline was seen as more depressing than all others because it combined depressing news with the opportunity to read news articles filled with technical tax jargon. Details of the new tax will dribble out over the next year until its full implementation in July of 2010. Here’s what we know so far.
Apparently, the HST is going to help businesses by making tax compliance easier. The theory is that the HST should result in simplified tax filings for businesses, as the current system of exemptions and credits is confusing, which as a side note provides employment for tax lawyers, accountants and bookkeepers. It’s going to be really great.
The press release from the B.C. government states:
B.C. will have the lowest Harmonized Sales Tax (HST) in Canada, by combining the seven per cent B.C. Provincial Sales Tax (PST) with the five per cent federal Goods and Services Tax (GST), for a single sales tax rate of 12 per cent. All other provinces with an HST, and the one proposed by Ontario, have a rate of 13 per cent.
…except for Alberta where they have all that oil tax revenue bubbling out of the ground. The PST in Alberta “rebated” (see below) to 0% for a combined tax rate of 5%.
The B.C. HST will provide “point-of-sale rebates” for some goods including: gasoline and diesel fuel for motor vehicles, books, children’s-sized clothing and footwear, children’s car seats and car booster seats, diapers and feminine hygiene products. I am not sure what a “point of sale rebate” is. I have always understood the word “rebate” as synonymous with “refund”. In other words, those items are not tax exempt, but graciously, that tax is being refunded for now.
It gets better. Historically, the PST was charged on the sale of goods. However, PST has been creeping into the provision of services. For example, lawyers have to charge PST. Accountants don’t. Astute readers will recall that part of acronym for GST is “services.” Personnel from the B.C. Ministry of Finance have explained to our office that if something was GST-able it will be HST-able. This means that formerly PST exempt services will now have to charge the full HST.
Harmonizing will mean that there is one collector for both taxes. The CRA has courteously volunteered to collect the HST on behalf of the province. Disputes will be resolved in the federal system through appeals to the Tax Court. Okay, that’s good. Tax Court judges have an expertise in tax matters that should contribute to the faster resolution of disputes.
GST debt collection on disputed tax assessments can cause such serious cash flow problems that a taxpayer is unable to continue to run a business or dispute the assessment. That type of cash flow problem should be much more common under the new HST. The bulk of GST disputes are a consequence of income tax disputes. For example, an income tax audit determines that the taxpayer has underreported income by $200,000. By inference, GST has been underreported by 5% of $200,000. The taxpayer has to immediately pay GST of $10,000 (plus interest) on the disputed $200,000 income. Under the HST system, the payable amount would be $24,000 (plus interest). You don’t need me to explain the type of impact this will have on a business’ cash flow. This change will be ugly.
The biggest change though has to be in housing. For new home purchasers there is another “rebate.” GST is payable on new home sales, so HST will also be payable. The press release states that there will be a “partial rebate of the provincial portion of the single sales tax for new housing to ensure that new homes up to $400,000 will bear no more tax than under the current PST system, while homes above $400,000 will receive a flat rebate of about $20,000.”
My first thought was “you can buy a new home for under $400,000?” My second thought was “are they revoking the property transfer tax for new homes?” We checked with the provincial Department of Finance and got one answer of “I don’t know” and another that PTT will still apply, but that HST will not be added to the value of the home for the purposes of calculating the PTT owing. Jeepers, new home buyers will pay nearly a 14% premium (12% HST plus 2% PTT (over $100,000 at 1%) minus $20,000) to get fancy granite countertops.
I told my friend Doug, who has just moved to B.C., that this new HST will help him run the business he just bought. Doug, who by the way is getting so old he pulls his pants right up to his armpits before complaining about the government, told me that it’s pretty clear: The HST is just a way to increase taxes. I explained to him that the HST is going to streamline everything. He laughed; then I laughed; then he laughed again. Then I asked him if he thought the Canucks would win the Cup this year. It was all pretty depressing, but not much of a headline.
-- J. Andre Rachert
The above article provides general commentary of an educational nature. It does not constitute advice for any specific person or any specific set of circumstances. Because circumstances vary, readers should consult professional advisers in order to obtain advice that is applicable to their specific circumstances.
