Ontario Combines GST and PST into HST, Good or Bad?
July 1, 2010 is an important day for all of Ontarians. Ontario has proposed a tax reform to follow some other province’s’ footsteps to combine both GST and PST into one, called Harmonized Sales Tax (HST).
Right now we in Ontario are paying both GST and PST in some items, while other items we only pay GST, such as most services. With the HST, for services and items that we are paying only 5% GST now, we will be paying 13% HST instead. A total of 8% increase.
While all the rules are not set and done, even the motion is not officially approved, we do have an idea that this will become the reality.
On Yesterday, Friday the 13th, the Ontario Premier Dalton McGuinty announced that there will no more further tax exemptions on the HST. After this announcement the news are all over newspaper, TV and radios, and so does the debuts started just a few minutes after the announcement!
The immediate effect of this combined sales tax HST is obviously increase of things we purchased. I am not going into the positive or negative effect in terms of the government and the long term forecast on the economy. Like the majority of the people, I want to find out how this tax will affect me immediately and personally.
How HST affect Home Buyers and Real Estate Investors
The biggest concern for the people comes from home buyer. Only GST are being charged for lawyer fees and taxes on house purchases. With the HST, home buyer can expect to pay 8% more, that’s a big amount.
Due to this concern, Ontario is proposing a tax rebate up to $24000 on new homes purchase as primary residence, however this only applies if you purchase a home less than $400,000.
The effect? Let see it this way. If a Torontonian wants to buy a house which costs 1 million dollars (which is not uncommon by the way, given the housing cost in Toronto), he/she will need to pay 13% taxes instead of 5% now. Remember all the transfer tax and lawyer fees how also required 13%, you can expect to pay approximately $200,000 on taxes alone to purchase that 1 million house.
This certainly is not a good news for some real estate investor. Although there is a tax rebate up to $24000, 8% of $400,000 is $32,000, plus all the other legal costs involve, you are still paying more tax. So if you are planning to buy a home, you would probably want to do it before July 1 next year. Having said that, the government claims that you will pay no more, or even less tax than under the PST system. The detail of how the tax rebate or tax credit is not ready yet, so we will see what will happen.
How HST affect Business Owners
HST actually benefits business owners. For a business owner, the collection and tax credit of GST/PST is the same, accept there is no two tax files and no need to track two separate taxes. For business owners who collects only GST, now you collect HST, exact same process with the tax rate changed. This actually save business owners a lot of time and money current use on filing and tracking separate taxes.
Ontario has been trying hard to reduce paper works and cut costs on processing time and resources needed for handling taxation matters. Starting from 2009, Ontario has already combined the tax filing for corporation into one. Previously all corporation in Ontario needs to file a separate taxes, one for federal and one for provincial.
By combining PST and GST into HST, once again Ontario government eliminates a lot of resources to manage two separate taxes. With the money saved, our tax dollars can be spend somewhere else more productive and beneficial to Ontario citizen.
Subjects exempt from HST
The following items are not currently taxed, they will not be taxes in the future.
- Basic groceries
- Prescription drugs
- Some medical devices
- Municipal public transit
- Health and most education services
- Legal aid
- Most financial services
- Child care
- Tutoring
- Music lessons
- Residential rents
- Condo fees
- HST does not apply to resale homes
Subjects exempt for the 8%
- Children’s clothing and footwear
- Children’s car seats and car booster seats
- Diapers
- Feminine hygiene products
- Books (including audio books)
- Prepared food and beverages sold for $4.00 or less
- Print newspapers
References:
- http://www.rev.gov.on.ca/en/taxchange/index.html
- http://www.thestar.com/news/ontario/harmonizedsalestax/article/725442–no-more-hst-exemptions-mcguinty-says
- http://www.theglobeandmail.com/news/national/ontario-strikes-populist-note-to-soften-the-hst-blow/article1361770/
Comments
Comment from Cecilia Leung
Time November 25, 2009 at 12:44 pm
Hi Feisal,
I am glad you like the blog. There is no overall advantage in the total tax, the advantage is more on timing of paying tax. If you pay business expenses thru your salary, you claim your tax back after.
Cecilia
Comment from GUEST_PRINT DESIGN WORLD
Time April 7, 2010 at 5:11 pm
how is resale print or design costs effected by this.
atm i only charge my clients gst if they are reselling product….
will i now have to charge HST and then our client charge the end client HST again?
Comment from GUEST_PRINT DESIGN WORLD
Time April 7, 2010 at 9:11 pm
how is resale print or design costs effected by this.
atm i only charge my clients gst if they are reselling product….
will i now have to charge HST and then our client charge the end client HST again?
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Comment from feisal visram
Time November 23, 2009 at 5:54 pm
Hello,
Love your forum and blog.
quick question.
is there any advantage to paying yourself benefits, if you are an employee of your own corporation?
for example, rather than buying eyeglasses, drugs through your salary you draw from you corporatoin, the corporation would pay benefits to you.
is there any overall tax advantage (advantage in total tax you would pay from corp and individual income tax from salary)?
thx
Feisal