Harmonized Sales Tax
Encyclopedia
The Harmonized Sales Tax (HST) is the name used in Canada
to describe the combination of the federal Goods and Services Tax
(GST) and the regional Provincial Sales Tax (PST) into a single value added
sales tax in five of the ten Canadian provinces
: Ontario
, New Brunswick
, Newfoundland and Labrador
, British Columbia
and Nova Scotia
. The HST is collected by the Canada Revenue Agency
, which remits the appropriate amounts to the participating provinces. The HST may differ
across these five provinces, as each province will set its own PST rates within the HST.
The introduction of the HST changes the PST for these provinces from a cascading tax system
, which has been abandoned by most economies throughout the world, to a value added tax like the GST.
To maintain the progressive nature of total taxes on individuals, the Canadian government (for the GST) and the four provincial governments have accompanied the change from a cascading tax to a value-add tax with a reduction in income taxes, and instituted direct transfer payments (refundable tax credits) to lower-income groups, resulting in lower tax burdens on the poor. The federal government provides a refundable "GST Credit" of up to $248 per adult and $130 per child to low income people for 2009-10. Provinces offer similar adjustments, such as Newfoundland and Labrador providing a refundable tax credit of up to $40 per adult and $60 for each child. British Columbia’s low income credit is mailed out to 1.1 million British Columbians every three months and amounts to up to $230 annually per individual.
Most economists support the change from a cascade tax to a value added tax and studies have shown that the national and provincial governments have succeeded in keeping the change to a value added tax revenue neutral. However, in some places it has shown to be unpopular with the general public, as shown in the British Columbia sales tax referendum, 2011
which ultimately decided that the HST should be reverted back to the GST/PST system.
provinces — New Brunswick
, Newfoundland and Labrador
, and Nova Scotia
— worked with the federal government
to implement a Harmonized Sales Tax and lower the sales tax portion to eight percent. The result was a 15% combined tax when the federal rate of seven percent was added. The new tax went into effect on April 1, 1997. The HST is collected by the Canada Revenue Agency
, which then remits the appropriate amounts to the participating provinces. On 1 July 2006, the GST was lowered to 6%, resulting in a combined HST of 14%, and again lowered on 1 January 2008 to 5%, resulting in a combined HST of 13%. On April 6, 2010, the Nova Scotia government raised the provincial portion of the HST, restoring the overall rate to 15% effective July 1, 2010.
The implementation in eastern provinces demonstrated that consumer prices fall after the change to a harmonized sales tax. The Martin task force found that “in Atlantic Canada prices on goods fell when they harmonized the sales tax.”
In British Columbia and Ontario, the HST replaced the PST and GST on 1 July 2010. Evidence from numerous studies shows that harmonization raises business investment and that PST-type taxes slow down provincial growth. British Columbia combined the 5% GST with the 7% PST and implemented the HST at a rate of 12 per cent. The B.C. government committed to lowering the HST by two points, to 10%, by 2014. Ontario’s HST rate is 13%. BC voted to repeal the HST and return to the PST and GST in August 2011.
The Conservative government's 2008 budget called sales tax harmonization "the single most important step provinces with retail sales taxes could take to improve the competitiveness of Canadian businesses."
On March 26, 2009 in its annual budget, the province of Ontario
announced its intention to merge the PST and GST to take effect on July 1, 2010.
The sales tax in British Columbia
was also restructured, merging the PST with the GST, effective July 1, 2010.
The tax attempts to build a more efficient tax system while not increasing sales tax revenues. Ontario will provide a refundable tax credit of up to $260 per adult or child for 2010-11 to low income people, and British Columbia will provide a refundable tax credit of up to $230 per adult or child for 2010-11. The federal and provincial tax credits are paid quarterly through the year. British Columbia will also mail out a onetime transition payment of $175 to low and modest income seniors as well as $175 for each child under 18 to every family with children.
On May 4, 2011, an independent panel commissioned by the BC government released a report on the impact of the HST in BC. The report concluded that "Unless you are among the 15 per cent of families with an income under $10,000 a year, you’re paying more sales tax under the HST than you would under the PST/GST: On average about $350 per family."
The report also predicted that by 2020, the HST is anticipated to result in a BC economy that will "Be $2.5 billion larger than it would be under the PST. That’s about $480 per person or $830 per family."
" for the poorest households to upper-middle class families while increasing taxes by $320 in British Columbia
and $290 in Ontario
.
Public opinion however holds negative feelings towards the HST with an Ipsos Reid poll showing vast majority of British Columbians (82%) and Ontarians (74%) oppose their provincial government’s plans to harmonize the sales tax. Only 39% of the public believes the HST would be beneficial for businesses whereas the Task Force on Competitiveness, Productivity and Economic Progress found costs will decrease for small business as they recover sales taxes they have to pay on goods and services they purchase and will lower their administrative costs. Additionally, only 10% of the public agree that the move will help to create more jobs. A study by Jack Mintz of the University of Calgary School of Public Policy found that the HST will create almost 600,000 new jobs over the next ten years.
Former B.C. Premier Bill Vander Zalm
launched a petition against the HST in British Columbia. On August 11, 2010, Elections BC informed him that the campaign had succeeded in collecting the signatures of more than 10% of registered voters in each of the province's 85 ridings by 5 July 2010. The success of the petition could require the provincial government to hold a referendum on the tax. Elections BC was expected to make a formal announcement but they declined to do so and have chosen not to move forward in the process until the courts have decided on a case, brought by local business groups, challenging the petition. On Monday, July 5, 2010, Bill Vander Zalm, Chis Delaney and Bill Tieleman announced that they had launched their own lawsuit, a constitutional challenge against the HST because it was never passed into law by the British Columbia's provincial legislature.
On August 20, 2010, Chief Justice Robert J. Bauman
ruled a petition opposing British Columbia's controversial harmonized sales tax was valid. This decision will result in sending the issue back to the provincial legislature. Bauman said Elections BC was correct when it approved the petition on August 11.
was conducted throughout June and July 2011.
The Question on the ballot was: Are you in favour of extinguishing the HST (Harmonized Sales Tax) and reinstating the PST (Provincial Sales Tax) in conjunction with the GST (Goods and Services Tax)? Yes or No
The ruling BC Liberals had campaigned in favour of the HST since its introduction the previous year, noting it would be too costly to return to the original GST/PST system. In April 2011, British Columbia Premier Christy Clark, announced a province-wide engagement initiative to listen to British Columbians' suggestions to "fix" the HST.
In May 2011, the Minister of Finance Kevin Falcon announced that if British Columbians vote to keep the HST the rate will drop by 1 % on July 1, 2012 and another point in 2014. This will bring the overall rate to 10%. The Government also committed to mailing onetime transition payments of $175 per child to families with children and $175 for low and middle income seniors. A month later, the federal government passed legislation to "formalize and give legal force to the reductions in the rate of the provincial component of the HST in British Columbia".
On August 26th, 2011, the results of the referendum were revealed by Elections BC, with 55% of 1.6 million voters in favour of abolishing the HST. The BC Liberals revealed a plan to re-instate the GST/PST system within 18 months, with a target date of March 31st, 2013.
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
to describe the combination of the federal Goods and Services Tax
Goods and Services Tax (Canada)
The Goods and Services Tax is a multi-level value added tax introduced in Canada on January 1, 1991, by then Prime Minister Brian Mulroney and his finance minister Michael Wilson. The GST replaced a hidden 13.5% Manufacturers' Sales Tax ; Mulroney claimed the GST was implemented because the MST...
(GST) and the regional Provincial Sales Tax (PST) into a single value added
Value added tax
A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...
sales tax in five of the ten Canadian provinces
Provinces and territories of Canada
The provinces and territories of Canada combine to make up the world's second-largest country by area. There are ten provinces and three territories...
: Ontario
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....
, New Brunswick
New Brunswick
New Brunswick is one of Canada's three Maritime provinces and is the only province in the federation that is constitutionally bilingual . The provincial capital is Fredericton and Saint John is the most populous city. Greater Moncton is the largest Census Metropolitan Area...
, Newfoundland and Labrador
Newfoundland and Labrador
Newfoundland and Labrador is the easternmost province of Canada. Situated in the country's Atlantic region, it incorporates the island of Newfoundland and mainland Labrador with a combined area of . As of April 2011, the province's estimated population is 508,400...
, British Columbia
British Columbia
British Columbia is the westernmost of Canada's provinces and is known for its natural beauty, as reflected in its Latin motto, Splendor sine occasu . Its name was chosen by Queen Victoria in 1858...
and Nova Scotia
Nova Scotia
Nova Scotia is one of Canada's three Maritime provinces and is the most populous province in Atlantic Canada. The name of the province is Latin for "New Scotland," but "Nova Scotia" is the recognized, English-language name of the province. The provincial capital is Halifax. Nova Scotia is the...
. The HST is collected by the Canada Revenue Agency
Canada Revenue Agency
The Canada Revenue Agency is a federal agency that administers tax laws for the Government of Canada and for most provinces and territories, international trade legislation, and various social and economic benefit and incentive programs delivered through the tax system...
, which remits the appropriate amounts to the participating provinces. The HST may differ
Sales taxes in Canada
In Canada, three types of sales taxes are levied. These are as follows:*Provincial sales taxes , levied by the provinces*Goods and Services Tax , a value-added tax levied by the federal government...
across these five provinces, as each province will set its own PST rates within the HST.
The introduction of the HST changes the PST for these provinces from a cascading tax system
Cascade tax
A cascade tax or cascading tax is a turnover tax that is applied at every stage in the supply chain, without any deduction for the tax paid at earlier stages. Such taxes are distorting in that they create an artificial incentive for vertical integration. They have been replaced in Europe and many...
, which has been abandoned by most economies throughout the world, to a value added tax like the GST.
To maintain the progressive nature of total taxes on individuals, the Canadian government (for the GST) and the four provincial governments have accompanied the change from a cascading tax to a value-add tax with a reduction in income taxes, and instituted direct transfer payments (refundable tax credits) to lower-income groups, resulting in lower tax burdens on the poor. The federal government provides a refundable "GST Credit" of up to $248 per adult and $130 per child to low income people for 2009-10. Provinces offer similar adjustments, such as Newfoundland and Labrador providing a refundable tax credit of up to $40 per adult and $60 for each child. British Columbia’s low income credit is mailed out to 1.1 million British Columbians every three months and amounts to up to $230 annually per individual.
Most economists support the change from a cascade tax to a value added tax and studies have shown that the national and provincial governments have succeeded in keeping the change to a value added tax revenue neutral. However, in some places it has shown to be unpopular with the general public, as shown in the British Columbia sales tax referendum, 2011
British Columbia sales tax referendum, 2011
A postal referendum on sales tax was held in British Columbia from June 13 to August 5, 2011, though Canada Post workers were locked out until June 27. Voters were asked whether the Harmonized Sales Tax should be retained or split back to the original Provincial Sales Tax and Goods & Services Tax...
which ultimately decided that the HST should be reverted back to the GST/PST system.
Background
In 1996, three AtlanticAtlantic Canada
Atlantic Canada is the region of Canada comprising the four provinces located on the Atlantic coast, excluding Quebec: the three Maritime provinces – New Brunswick, Prince Edward Island, and Nova Scotia – and Newfoundland and Labrador...
provinces — New Brunswick
New Brunswick
New Brunswick is one of Canada's three Maritime provinces and is the only province in the federation that is constitutionally bilingual . The provincial capital is Fredericton and Saint John is the most populous city. Greater Moncton is the largest Census Metropolitan Area...
, Newfoundland and Labrador
Newfoundland and Labrador
Newfoundland and Labrador is the easternmost province of Canada. Situated in the country's Atlantic region, it incorporates the island of Newfoundland and mainland Labrador with a combined area of . As of April 2011, the province's estimated population is 508,400...
, and Nova Scotia
Nova Scotia
Nova Scotia is one of Canada's three Maritime provinces and is the most populous province in Atlantic Canada. The name of the province is Latin for "New Scotland," but "Nova Scotia" is the recognized, English-language name of the province. The provincial capital is Halifax. Nova Scotia is the...
— worked with the federal government
Politics of Canada
The politics of Canada function within a framework of parliamentary democracy and a federal system of parliamentary government with strong democratic traditions. Canada is a constitutional monarchy, in which the Monarch is head of state...
to implement a Harmonized Sales Tax and lower the sales tax portion to eight percent. The result was a 15% combined tax when the federal rate of seven percent was added. The new tax went into effect on April 1, 1997. The HST is collected by the Canada Revenue Agency
Canada Revenue Agency
The Canada Revenue Agency is a federal agency that administers tax laws for the Government of Canada and for most provinces and territories, international trade legislation, and various social and economic benefit and incentive programs delivered through the tax system...
, which then remits the appropriate amounts to the participating provinces. On 1 July 2006, the GST was lowered to 6%, resulting in a combined HST of 14%, and again lowered on 1 January 2008 to 5%, resulting in a combined HST of 13%. On April 6, 2010, the Nova Scotia government raised the provincial portion of the HST, restoring the overall rate to 15% effective July 1, 2010.
The implementation in eastern provinces demonstrated that consumer prices fall after the change to a harmonized sales tax. The Martin task force found that “in Atlantic Canada prices on goods fell when they harmonized the sales tax.”
In British Columbia and Ontario, the HST replaced the PST and GST on 1 July 2010. Evidence from numerous studies shows that harmonization raises business investment and that PST-type taxes slow down provincial growth. British Columbia combined the 5% GST with the 7% PST and implemented the HST at a rate of 12 per cent. The B.C. government committed to lowering the HST by two points, to 10%, by 2014. Ontario’s HST rate is 13%. BC voted to repeal the HST and return to the PST and GST in August 2011.
The Conservative government's 2008 budget called sales tax harmonization "the single most important step provinces with retail sales taxes could take to improve the competitiveness of Canadian businesses."
Developments in 2010, 2011 for Ontario and British Columbia
The HST was introduced on July 1, 2010 in the provinces of Ontario and British Columbia. Polls show that 82% of British Columbians and 74% of Ontarians opposed it before it was implemented.On March 26, 2009 in its annual budget, the province of Ontario
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....
announced its intention to merge the PST and GST to take effect on July 1, 2010.
The sales tax in British Columbia
Sales taxes in British Columbia
Sales taxes in British Columbia are levied via the Harmonized Sales Tax , which replaced the separate Provincial Sales Tax and federal Goods and Services Tax on 1 July 2010...
was also restructured, merging the PST with the GST, effective July 1, 2010.
The tax attempts to build a more efficient tax system while not increasing sales tax revenues. Ontario will provide a refundable tax credit of up to $260 per adult or child for 2010-11 to low income people, and British Columbia will provide a refundable tax credit of up to $230 per adult or child for 2010-11. The federal and provincial tax credits are paid quarterly through the year. British Columbia will also mail out a onetime transition payment of $175 to low and modest income seniors as well as $175 for each child under 18 to every family with children.
On May 4, 2011, an independent panel commissioned by the BC government released a report on the impact of the HST in BC. The report concluded that "Unless you are among the 15 per cent of families with an income under $10,000 a year, you’re paying more sales tax under the HST than you would under the PST/GST: On average about $350 per family."
The report also predicted that by 2020, the HST is anticipated to result in a BC economy that will "Be $2.5 billion larger than it would be under the PST. That’s about $480 per person or $830 per family."
Affected items
- In Ontario the HST will increase tax on gasoline and diesel from 5% to 13%.
- In British Columbia, the HST will apply on motor fuel and diesel but the 7% provincial portion will be refunded at the point of sale, meaning the effective tax will remain at 5%, the rate of the GST.
- PST was only applicable to goods, whereas HST is generally applicable to both goods and services. Service items from haircuts to carpet cleaning that previously include only the five per cent GST saw an increase in costs. However, in Ontario the PST portion of the HST will be exempt on newspapers and fast food items not exceeding $4 per purchase.
- In Ontario, a rebate compensating for the HST will leave the first $400,000 of a new home purchase unaffected whereas the portion of a home above $400,000 will be charged the full HST. However, buyers of new homes will receive a rebate of up to $24,000 regardless of the price of the new home.
- For Ontarians HST will not be charged on the resale of an existing home, however renovations are taxable.
- Ontarians will pay more for management and other fees associated with investment funds, such at: mutual funds, segregated funds and ETFs.
Exemptions
- Both provinces made such household goods as children's clothing and shoes, car seats, diapers and feminine hygiene products HST exempt.
- In British Columbia, the HST will not extend to local public transit fares, BC FerriesBC FerriesBritish Columbia Ferry Services Inc. or BC Ferries is a de facto Crown Corporation that provides all major passenger and vehicle ferry services for coastal and island communities in the Canadian province of British Columbia...
tickets, or bridge and road tolls. - In Ontario, First Nations status card holders are exempt from the provincial part of the HST for eligible off-reserve purchases. This exemption is in addition to the relief provided to First Nations under the GST/HST framework, such as for purchases on a reserve or delivered to a reserve. It is also in addition to point-of-sale rebates offered to all Ontarians on items such as books or children's clothing.
Reception
A study, conducted by the CD Howe Institute before announcements to exempt low value purchases, found B.C. and Ontario's HST likely revenue neutral. A separate report from the Roger Martin task force on the economy found the HST would lower taxes overall as “increased revenue from the harmonized sales tax is matched by reductions in corporate and personal taxes and by tax credits. The effect is revenue loss.” The Globe and Mail reporting on the study found that the "Ontario government will actually lose revenue." In a report by David Murrell, Ph. D, Senior Fellow at the Canadian Centre for Policy Studies, the net impact of the tax was expected to be "modestly progressiveProgressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...
" for the poorest households to upper-middle class families while increasing taxes by $320 in British Columbia
British Columbia
British Columbia is the westernmost of Canada's provinces and is known for its natural beauty, as reflected in its Latin motto, Splendor sine occasu . Its name was chosen by Queen Victoria in 1858...
and $290 in Ontario
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....
.
Public opinion however holds negative feelings towards the HST with an Ipsos Reid poll showing vast majority of British Columbians (82%) and Ontarians (74%) oppose their provincial government’s plans to harmonize the sales tax. Only 39% of the public believes the HST would be beneficial for businesses whereas the Task Force on Competitiveness, Productivity and Economic Progress found costs will decrease for small business as they recover sales taxes they have to pay on goods and services they purchase and will lower their administrative costs. Additionally, only 10% of the public agree that the move will help to create more jobs. A study by Jack Mintz of the University of Calgary School of Public Policy found that the HST will create almost 600,000 new jobs over the next ten years.
Former B.C. Premier Bill Vander Zalm
Bill Vander Zalm
Wilhelmus Nicholaas Theodore Marie "Bill" Vander Zalm is a politician and entrepreneur in British Columbia, Canada. He was the 28th Premier of British Columbia from 1986 to 1991.-Early life:...
launched a petition against the HST in British Columbia. On August 11, 2010, Elections BC informed him that the campaign had succeeded in collecting the signatures of more than 10% of registered voters in each of the province's 85 ridings by 5 July 2010. The success of the petition could require the provincial government to hold a referendum on the tax. Elections BC was expected to make a formal announcement but they declined to do so and have chosen not to move forward in the process until the courts have decided on a case, brought by local business groups, challenging the petition. On Monday, July 5, 2010, Bill Vander Zalm, Chis Delaney and Bill Tieleman announced that they had launched their own lawsuit, a constitutional challenge against the HST because it was never passed into law by the British Columbia's provincial legislature.
On August 20, 2010, Chief Justice Robert J. Bauman
Robert J. Bauman
Robert J. Bauman is the Chief Justice of the Supreme Court of British Columbia, appointed on September 9, 2009.-References:...
ruled a petition opposing British Columbia's controversial harmonized sales tax was valid. This decision will result in sending the issue back to the provincial legislature. Bauman said Elections BC was correct when it approved the petition on August 11.
Rejection in B.C.
The approval of the petition to recall the HST in British Columbia paved the way for a referendum that allowed British Columbians to decide the fate of the tax system. Elections BC conducted the referendum via mail-in ballot, allowing registered voters to send in their decision in regards to the HST. The British Columbia sales tax referendum, 2011British Columbia sales tax referendum, 2011
A postal referendum on sales tax was held in British Columbia from June 13 to August 5, 2011, though Canada Post workers were locked out until June 27. Voters were asked whether the Harmonized Sales Tax should be retained or split back to the original Provincial Sales Tax and Goods & Services Tax...
was conducted throughout June and July 2011.
The Question on the ballot was: Are you in favour of extinguishing the HST (Harmonized Sales Tax) and reinstating the PST (Provincial Sales Tax) in conjunction with the GST (Goods and Services Tax)? Yes or No
The ruling BC Liberals had campaigned in favour of the HST since its introduction the previous year, noting it would be too costly to return to the original GST/PST system. In April 2011, British Columbia Premier Christy Clark, announced a province-wide engagement initiative to listen to British Columbians' suggestions to "fix" the HST.
In May 2011, the Minister of Finance Kevin Falcon announced that if British Columbians vote to keep the HST the rate will drop by 1 % on July 1, 2012 and another point in 2014. This will bring the overall rate to 10%. The Government also committed to mailing onetime transition payments of $175 per child to families with children and $175 for low and middle income seniors. A month later, the federal government passed legislation to "formalize and give legal force to the reductions in the rate of the provincial component of the HST in British Columbia".
On August 26th, 2011, the results of the referendum were revealed by Elections BC, with 55% of 1.6 million voters in favour of abolishing the HST. The BC Liberals revealed a plan to re-instate the GST/PST system within 18 months, with a target date of March 31st, 2013.
See also
- Sales taxes in CanadaSales taxes in CanadaIn Canada, three types of sales taxes are levied. These are as follows:*Provincial sales taxes , levied by the provinces*Goods and Services Tax , a value-added tax levied by the federal government...
- Sales taxes in British ColumbiaSales taxes in British ColumbiaSales taxes in British Columbia are levied via the Harmonized Sales Tax , which replaced the separate Provincial Sales Tax and federal Goods and Services Tax on 1 July 2010...
- Goods and Services Tax (Canada)Goods and Services Tax (Canada)The Goods and Services Tax is a multi-level value added tax introduced in Canada on January 1, 1991, by then Prime Minister Brian Mulroney and his finance minister Michael Wilson. The GST replaced a hidden 13.5% Manufacturers' Sales Tax ; Mulroney claimed the GST was implemented because the MST...