Canada: Ontario Announces Harmonization With GST


The Ontario budget released on March 26, 2009 announced that the eight per cent Ontario provincial sales tax (PST) will be harmonized with the current five percent federal goods and services tax (GST). If enacted as proposed, the harmonized sales tax (HST) will be implemented on July 1, 2010. The budget did not provide many technical details regarding the HST, but it appears that the GST rate will be increased from five per cent to 13 per cent for taxable transactions in Ontario. This is the same rate as the HST that applies in Nova Scotia, New Brunswick and Newfoundland.

Benefits and Costs

The major benefit of harmonization is that it will eliminate unrecoverable PST for most businesses in Ontario. Currently, businesses pay PST on a broad range of goods (and a limited range of services) acquired in Ontario unless they qualify for a specific exemption such as the production machinery and equipment exemption. The HST will eliminate the non-recoverable PST burden, as the HST will generally be recoverable through the input tax credit mechanism. The budget states that studies have shown that most of these tax savings are passed on to consumers through lower prices.

Financial institutions will be major business losers under the new system, however. The budget documents indicate that financial services will be exempt under the HST, with the result that businesses in the financial sector, such as banks, will have a limited ability to recover HST paid on expenses relating to their financial activities. The increased burden of unrecoverable tax may lead banks and other financial institutions to look at ways to reduce their tax cost, such as relying more on in-house resources than on third party suppliers. Another issue for financial institutions is how Québec will react to Ontario's decision to exempt financial services. When Québec harmonized its sales tax regime with the GST by introducing the Québec sales tax (QST) in 1992,it zero-rated financial services so that financial institutions are able to recover QST. Québec, however, may decide to follow Ontario's lead and remove zero-rating, which will increase the QST burden on financial institutions operating in Québec.

Consumers will also bear a significantly higher tax burden, as the tax base for HST will be much broader than is the case with the PST. As noted, Ontario PST applies to a limited range of services, whereas GST applies to all services other than those that are specifically exempt. In addition, a number of PST exemptions that benefit consumers will no longer apply once the tax is harmonized. The HST will provide only a few point-of-sale exemptions for the provincial portion of the tax (e.g., certain items for children). Another area where the HST will significantly impact consumers is on the cost of new housing. GST applies to the sale of new residential housing (with a partial GST rebate where the price does not exceed $450,000). PST applies only indirectly on the cost of building materials. The HST will now apply to sales of new housing, with a rebate of 75 per cent of the provincial component on housing priced under $400,000 (and a reduced rebate for housing priced between $400,000 to $500,000). The HST will also apply where new housing in Ontario is converted into rental accommodation, triggering a self-assessment obligation on the developer. This may be a significant issue for developers if the current difficult conditions in the housing market continue.

The HST will also apply to professional services such as legal and accounting services. While the five per cent GST currently applies to these services, Ontario PST does not ― although PST is levied on legal services in British Columbia and on legal and other professional services in other PST provinces (Saskatchewan, Manitoba and Prince Edward Island). The implementation of the HST will significantly increase the cost of professional services provided in Ontario, although based on the design of the GST, there will likely be relieving rules for services provided to non-residents of Ontario.

Special Features

The budget papers indicate that the HST will generally follow the structure of the GST. Ontario, however, announced that there will be restrictions on the ability of large businesses (those with annual taxable sales of over $10,000,000) and financial institutions to claim input tax credits on expenses for energy, telecommunication services, road vehicles under 3,000 kilograms, and food, beverages and entertainment. These restricted credits are to be in place for a period of five years, after which the restrictions will be phased out over a three-year period. These restrictions are similar to those that apply under the QST for large businesses. When the QST restrictions were introduced in 1993, they were also supposed to be temporary in nature, but have remained in place.

Ontario will also retain an eight per cent tax on certain types of insurance. Currently, a broad range of insurance coverage is subject to PST. The budget papers indicate that the same type of insurance premiums will continue to be taxed after harmonization. This is similar to the taxes on insurance that were retained by Québec when it introduced the QST.

Issues for Businesses

Businesses that operate in or supply goods and services to Ontario will have to consider the impact of harmonization on their operations ― in terms of both costs and revenues. Generally, the implementation of the HST will be beneficial for businesses, but those that deal directly with commercial customers or with consumers, such as the housing industry, that are unable to recover the tax, may have to take the effect of the HST into account in their pricing.

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
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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.