The HST, Harmonized Sales Tax, has been a hot topic in both Ontario & British Columbia over the last year since it was announced March 2009. With the tax coming into effect on July 1, 2010, many have mixed opinions on how the tax will affect various costs. Here are a few things that would help you, as the consumer, understand the Harmonized Sales Tax.
What is the HST?
Currently in Ontario, residents pay a 5% federal sales tax and an 8% regional sales tax on many common goods and services. With the combined Harmonized Sales Tax, there will be one combined tax of 13%. Although many goods and services are not affected by this change, some services will begin to be taxed at the full HST tax rate, as opposed to previously only being at the 5% federal sales tax rate.
How will the HST help?
Many economists, along with the governments supporting this new combined sales tax, are considering the HST to be a bold move that will help with job creation, higher wages, and reducing other household consumer costs. It is being forecasted that over the next 10 years, Ontario could see 591,000 new jobs being created.
The prospect of lower consumer costs can be seen in provinces that have already implemented the Harmonized Sales Tax. In 1997, Newfoundland & Labrador, New Brunswick, and Nova Scotia harmonized their tax. Since, reports have shown that consumer prices have in fact, lowered.
Currently, products are getting taxed multiple times from the time that it is produced to the time it is purchased. This tax on a tax on a tax, also known as the “cascading tax system”, is being eliminated for a more efficient flow so that consumers are not paying tax for products multiple times, which the government hopes will reduce the prices on many products.
As the McGuinty government has already expressed that the positive effects of the HST will not be immediate, the government is offering an HST transition rebate for Ontario residents. Single residents over the age of 18 making less than $80,000 annually will receive a total of $300 over the next twelve months; families making less than $160,000 will receive a total of $1,000 over the next twelve months. These rebates will be either directly deposited or mailed by check, which are scheduled to arrive in June 2010, December 2010, and June 2011.
How will the HST hurt?
It’s no surprise that individuals and families alike will be affected by the new HST. The average family will have to pay an additional $792 annually after the HST comes into effect. Although 83% of consumer expenses do not have an increase in sales tax, some of the most used items that were initially taxed only with regional sales tax at 5% will now be subject to an 8% increase to 13%.
Some of the most prominent changes include tax increases to the following:
• Electricity and Heating
• Gasoline/Diesel
• Home Service Calls (by an electrician, plumber, etc)
• Landscaping, Lawn-Care, Private Snow Removal
How will the HST effect real estate transactions?
Here’s an easy guide to better help you understand the HST effects on real estate matters.
The following are exempt from the Harmonized Sales Tax:
• Mortgage brokerage fees if applicable are exempt as part of the financial services industry.
• Rents paid by tenants: For residential tenancies, HST will not apply.
• Condominium monthly fees: For residential condominiums, HST will not apply to monthly common expenses.
• Resale residential property: There will be no HST on the price of resale residential purchases.
• Resale cottage/vacation property purchases: HST will not be payable on the price if the property sold by the seller and bought by the buyer is personal use property.
• Resale apartment buildings: Multi-unit residential properties are exempt from the HST.
The following are NOT exempt from the Harmonized Sales Tax:
• Rents paid by tenants: For commercial tenancies, HST will apply.
• Condominium monthly fees: For commercial condominiums, HST will apply to monthly common expenses.
• Home Renovations (For any part of services provided after July
1st, 2010 – No matter when the contract was signed)
• New Home Purchases (over $400,000 – not including re-sale home purchases)
• New home purchases: HST will apply on all new home purchases unless the purchased home is going to be the principal place of residence (exemption can only apply if the purchase price is below $400,000)
• Resale cottage/vacation property purchases: HST will be payable on the price if the seller had been renting out the property more than 50% of the time during the seller’s ownership. If the property being sold was part of a rental pool, HST will apply.
• Resale apartment buildings: Multi-unit commercial properties are NOT exempt from the HST.
• Real estate services as well as legal services are not exempt from the HST.
For more information, please visit Ontario Ministry of Revenue website.
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