Controversial Policy Takes Effect July 1, 2010
The current government first floated the idea prior to the last provincial budget in March 2009. The policy would see Ontario combine its Provincial Sales Tax (PST) with the federal Goods & Service Tax (GST). The PST rate is 8% while the federal G.S.T. is sitting at 5%, meaning the combined total will be a 13% tax.
New Harmonized Sales Tax To Make Ontario More Competitive
The federal government has been pressuring various Ontario governments to take this step for some time. Provincial officials within the finance ministry argue the new combined sales tax will make Ontario more competitive around the world as a place to do business. They say it will also reduce the cost of Ontario-made goods, and because of this, it is going to give the manufacturing sector a much-needed boost.
A second part of the argument is it will reduce business costs. Right now, business owners can’t deduct PST from the cost of products purchased for business, so they end up passing it onto consumers. Under the new Harmonized Tax (HST) business will be able to deduct it, and ideally, pass on the savings to consumers. Estimates place savings for business at approximately $1.6 billion annually.
Progressive Conservatives, Building Industry Oppose HST
Traditionally, the HST is Conservative economic policy. But Ontario’s Progressive Conservatives (PC’s) are leading the fight against the HST, placing them in direct conflict with their federal counterparts. In recent remarks to the Canadian Press, their leader, Tim Hudak said they were “on the side of Ontario families and businesses who see it for what it is: a calculated tax grab.” In the same article, his New Democratic Party (NDP) counterpart Andrea Horwath agreed, calling it: “the wrong tax, at the wrong time.”
It isn’t just the political parties at Queen’s Park who are opposing it. The new policy is facing some stiff opposition from the building industry. Estimates say the new harmonized sales tax will add: $46-58 thousand to the cost of a house.
$10.6 Billion Tax Relief Incentives To Help With Harmonization
The Provincial government is going to offer some tax relief to help Ontarians with the new tax. Over the next three years, the McGuinty government plans to offer a total of $10.6 billion in incentives.
According to CBC.CA, these incentives include:
- $1.1 billion in personal income tax cuts
- An exemption for new homes under $400 thousand
- Cash payments of $1,000 for families earning less than $160, 000
- A permanent, non-refundable tax credit for low to middle-income adults and children
- An enhanced property tax credit for low and middle-income homeowners and tenants
What Goods Are There Going To Be HST On?
Goods ranging from rent and condo fees to resale homes, prescription drugs, and medical devices will remain exempt from both PST and GST. New items being taxed include everything from haircuts and gasoline to taxi fares, newspapers, and magazines. Those who provide professional services such as lawyers and real estate agents will have to charge HST on their commissions.
The Harper government has offered $4.3 billion to aid in the policy’s implementation. Ontario will become the fifth province to harmonize its sales taxes, when the policy comes into effect July 1, 2010.