Ontario joins in on HST

On July 1, 2010, consumers in Ontario and British Columbia will begin paying one tax of 13 per cent on goods and services, the Harmonized Sales Tax (HST).

HST is a combination of the 8 per cent Provincial Sales Tax (PST) and the 5 per cent Goods and Service Tax (GST), and it is designed to increase administrative efficiency and reduce the tax burden for businesses. The HST has been in effect in Newfoundland and Labrador, New Brunswick and Nova Scotia since 1997.

GST and HST are value-added taxes, applied to every purchase of a good or service with rebates for purchases that are not made by a final consumer, while PST is applied without rebates.
Tracy Snoddon, associate professor of economics at Wilfrid Laurier University, explained that PST “tends to increase the price of some investment goods for business, and can therefore reduce investment in capital goods, and tends to make exports from Ontario more expensive.”

“This problem is largely avoided under a HST which credits firms with taxes paid on business inputs,” said Snoddon.

The provincial governments in both Ontario and British Columbia are providing some special measures to help businesses and consumers adjust to the HST. The government of Ontario will be providing exemptions for the eight per cent provincial portion of the HST on books, children’s clothing and footwear, as well as a variety of other essential products.

According to TD Canada Trust chief economist Don Drummond, in a report issued on Sept. 18, the tax change will save businesses in Ontario and British Columbia around $6.9 billion, but will raise the effective retail tax rate by an average of 1.5 per cent for consumers in those provinces.
In judging the benefits of the HST, Snoddon said, “These effects would generate a welcome competitiveness boost for Ontario.”

By the numbers

$400 million
in tax credits will be available for businesses to make administrative changes

$40 million
per year will be provided to support tourism marketing that may be affected by the tax change.

$3,000
for most families made in three payments

$900
for most individuals will be made available to those in Ontario