Canada: Ontario Announces Harmonization With GST

Last Updated: July 17 2009
Article by Brian C. Pel and James Warnock

Most Read Contributor in Canada, September 2018

Background

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 Mondaq.com.

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

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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