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: British Columbia, Ontario, New Brunswick, Newfoundland and Labrador, 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 five 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.
How much is it?
|Provincial Sales Tax (PST)||7%||8%|
|Federal Goods and Service Tax (GST)||5%||5%|
|New Harmonized Sales Tax (HST)||12%||13%|
When was the HST implemented?
The HST has been introduced as of 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. This has introduced a significant amount of insight and analysis regarding the HST in these two provinces.
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 taxes 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.
How does it affect the sale of my current owner occupied principal residence (re-sale)?
The sale of housing that has been previously occupied by an individual as a place of residence and that was exempt from GST would also be exempt from HST.
When does the HST apply to the sale of a new construction home or new rental property?
Builders’ sales of newly constructed or substantially renovated homes would be subject to HST when both ownership and possession of the home are transferred after June 30, 2010.
The provincial portion of HST would not apply to builders’ sales of newly constructed or substantially renovated homes that are taxable under the GST where, under a written agreement of purchase and sale, ownership or possession of the home is transferred before July 1, 2010.
The HST would not apply if either the ownership or possession of the complex is transferred, under a written agreement of purchase and sale, to the purchaser before July 1, 2010 or if the sale was entered into on or before June 18, 2009 in Ontario and November 18, 2009 in British Columbia, regardless of the ownership or possession date.
Is there a Housing Rebate?
Yes, new housing rebates would apply when HST is charged and the purchaser would have qualified for a GST rebate.
Please visit http://www.rev.gov.on.ca/en/taxchange/index.html and http://www.gov.bc.ca/hst/ for more information on the rebate.
Are other closing costs subject to HST?
Yes, other costs associated with the purchase of your new house, including legal fees, home inspection fees, appraisal fees and real estate agent commission fees will be subject to HST.
How it works
The fact is, Ontario’s former sales tax structure — that included the provincial sales tax (PST) — hurt job creation.
The PST was charged on many purchases made by businesses in manufacturing goods and providing services. It penalized businesses by taxing them at every step in the production, distribution and retail processes — making the PST a tax on a tax on a tax.
With the PST, about $4.5 billion in embedded sales tax was hidden in the cost of doing business in Ontario. It drove up costs to consumers and placed Ontario’s businesses at a competitive disadvantage. Most countries we compete with for jobs don’t have that disadvantage.
The HST generally removes this hidden tax by refunding sales taxes paid on most business inputs. These refunds will mean lower prices for many consumer purchases and lower business costs, which experts agree will improve the competitiveness of Ontario businesses and result in increased business investment, leading to more jobs and higher incomes.