Canada: Focus On Tax - March 2009

Last Updated: April 6 2009
Article by Neil Bass, Wendy A. Brousseau, Chia-yi Chua and Angelo Gentile

Ontario Announces Sales Tax Harmonization

On March 26, 2009 – The Honourable Dwight Duncan, Minister of Finance, tabled the 2009 Ontario Budget today and announced that the province's existing 8% retail sales tax ("PST") will be harmonized with the 5% federal goods and services tax ("GST") effective July 1, 2010.

The Big Picture

The new value-added tax of 13% will be administered by the Canada Revenue Agency and the Canada Border Services Agency and will apply in the same manner as the GST; albeit with some exceptions. The range of goods and services that are not currently subject to PST but that will be fully subject to the new 13% sales tax include: commercial real property sales and leases, new residential housing (with varying rebates for homes under $500,000), real estate commissions, property maintenance and landscaping services, legal and accounting services, transportation services, gasoline, utilities, custom computer software and internet access. Certain goods and services that are exempt under the current PST regime will continue to be exempted from the 8% provincial component of the new single tax at the point of sale. These include children's clothing and footwear, children's car and booster seats, diapers, books and feminine hygiene products. Other notable differences are that insurance premiums in Ontario (which are exempt from GST), will remain subject to a provincial tax of 8% if they are currently taxed under PST (e.g., group insurance) as will private automobile sales.

To help consumers offset the increase in tax, the Budget proposes to provide families with transitional payments. Families with income of $160,000 or less will receive payments totalling $1,000 and single individuals with incomes of $80,000 or less will receive payments totalling $300.

As is the case with GST, there will be taxable, zero-rated and exempt categories of supplies. Taxable supplies include all domestic goods and services that are not specifically enumerated as exempt or zero-rated. Exempt supplies include things such as domestic financial services, health and child care services, long term residential rents, used housing and educational services. Zero-rated supplies include basic groceries, prescription drugs, medical devices and exports.

Registered suppliers who make taxable and zero-rated supplies will be entitled to recover the tax they pay on their business inputs through the input tax credit ("ITC") mechanism. However, in contrast to GST, there will be temporary restrictions on the ability of large suppliers (those with annual taxable sales of more than $10 million) to claim ITCs for energy, telecommunications (other than internet-access and toll-free numbers), certain road vehicles and fuel for same as well as food, beverages and entertainment. These temporary restrictions will be fully in effect for the first 5 years of the implementation of the new single sales tax and phased out in the subsequent 3 years and will only apply to the provincial portion.

Doing Business In Ontario

It can be expected that the legislation implementing the new tax will contain place-of-supply rules that will operate in the same fashion as in the existing harmonized provinces. Thus, supplies of goods and services that are deemed to be made in Ontario or that are imported into Ontario will be subject to the 13% tax. Registration requirements will be the same as for GST and registrants will file a single sales tax return.

Businesses in Ontario will be required to update their accounting systems in order to collect the single sales tax. In order to assist small businesses with the transition to collection of the single tax, Ontario will provide transitional credits of up to $1,000 for small businesses (other than financial institutions) with annual revenues of less than $2 million.

General Considerations

Very few details surrounding the single tax were announced today. As is often the case, the devil could be in the details. The impetus, however, for the introduction of the single tax was made clear: to enhance the competitiveness of Ontario businesses. This, in large part, will be accomplished by the ITC mechanism. As a value-added tax, the new single tax will be recoverable by businesses engaged in commercial activities whereas under the current PST system, the PST is not recoverable and becomes imbedded in the cost of goods and services. As a result, if major business expenditures are contemplated, timing and form of acquisition are key considerations. For example, does it make sense to lease goods instead of purchasing them prior to July 1, 2010? Conversely, as the implementation date gets closer, businesses may consider bulking up on their inventories (as goods for resale are not subject to PST) so as to avoid the cash flow burden of paying the 13% single tax and waiting to recover it by means of the ITC mechanism. Moreover, special attention should be paid to supply-and-install contracts and transactions that straddle the July 1, 2010 implementation date.

Real Estate Sector

The real estate sector will be particularly affected by the introduction of the new single tax. This is because, currently, no PST is exigible on real property. As of July 1, 2010, taxable real property, which includes newly constructed residential homes, will be subject to the 13% single tax.

While newly constructed homes will remain subject to the GST, a rebate for the provincial portion of the single tax for newly built homes and condominiums will be introduced with respect to the provincial portion of the single tax for homes worth $500,000 or less. The rebate for homes under $400,000 will be 75% of the provincial portion (or 6% of the purchase price) with the rebate reduced for homes priced between $400,000 and $500,000. The greatest impact will be on new homes worth more than $500,000. For example, the purchase price of a newly built home worth $550,000 will be increased by $44,000.

Contracts relating to the construction and renovation of real property could be significantly affected. This is particularly the case with supply-and-install arrangements, given that under the current PST regime, the incidence of tax is placed on the contractor rather than the buyer.

Public Service Bodies Sector

Ontario's public service bodies (PSBs) will collect the new single sales tax on their taxable supplies and pay the tax on their taxable inputs. However, since many PSBs are engaged primarily in exempt activities, they are generally precluded from claiming ITCs in respect of tax paid on their inputs. As is the case with the GST, PSBs will be able to claim rebates for the provincial component of the new sales tax, so that the net effect of the tax on each sector is expected to be fiscally neutral relative to the amount of PST currently paid by these sectors.

The rebates, which will be a percentage of the provincial component of the new single sales tax, will be as follows:

PSB Sector




Universities and Colleges


School Boards




Charities and Qualifying Non-Profit Organizations


Financial Services

Perhaps the most significantly impacted sectors under the new single sales tax will be the financial services sector. Based on the materials released on the date of the Budget, it would appear that financial institutions will be treated as exempt for both the federal and provincial component of the new tax. This is in contrast to Québec where financial services are zero-rated supplies which allows financial institutions in Québec to recover the QST on their business inputs. The severe restrictions under the GST on the ability of financial institutions to claim ITCs means that under the proposed single tax, financial institutions will bear significant additional costs on inputs not currently subject to PST.

While the implementation of the single sales tax will not take effect until July 1, 2010, there are key considerations, in addition to the systems changes, that businesses should be taking into account, particularly with respect to contractual commitments prior to that date.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions