The Harmonized Sales Tax is a consumption tax in Canada.
It is used in provinces where both the federal Goods and Services Tax and the regional Provincial
Sales Tax have been combined into a single value added sales tax.
Jurisdiction The HST is in effect in five of the ten Canadian
provinces: Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward
Island.
Collection 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 changed 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.
Individual HST credit To help maintain revenue neutrality of total
taxes on individuals, the Canadian government and the participating 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 to lower-income groups.
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.
1997 implementation In 1996, three of the four Atlantic provinces —
New Brunswick, Newfoundland and Labrador, and Nova Scotia — entered into an agreement
with the Government of Canada to implement what was initially termed the Blended Sales
Tax which would combine the 7% federal GST with the provincial sales taxes of those provinces;
as part of this project, the PST portion of the new HST in these provinces dropped from
10% to 8%.
The result was a 15% combined tax when the federal GST was added.
The new tax for these provinces went into effect on 1 April 1997.
The HST is collected by the Canada Revenue Agency, which then remits the appropriate
amounts to the participating provinces.
Subsequent studies have been equivocal as to the success of this implementation for
these provinces' economies and their consumers.
2006 and 2008 GST reductions On 1 July 2006, the Government of Canada reduced
the GST nationwide to 6%, resulting in a combined HST for Nova Scotia, New Brunswick and Newfoundland
and Labrador of 14%.
The GST was again lowered nationwide on 1 January 2008 to its current rate of 5%, resulting
in a combined HST in Nova Scotia, New Brunswick and Newfoundland and Labrador of 13%.
2010 HST increase in Nova Scotia On 6 April 2010, the Government of Nova Scotia
raised the provincial portion of the HST to 10%, restoring the overall rate in that province
to 15% effective 1 July 2010 as part of deficit fighting measures.
On 2 April 2012 the premier indicated that the provincial government was planning to
decrease the HST back to 13% by 2015 but this has since been canceled by a new government.
2010 implementation The Government of Canada's 2008 federal budget
called sales tax harmonization "the single most important step provinces with retail
sales taxes could take to improve the competitiveness of Canadian businesses" and federal finance
officials began to pressure/entice non-HST provinces to abandon their PST systems.
Consequently in 2008 and 2009 the provinces of Ontario and British Columbia entered into
negotiations with the Government of Canada for adopting the HST.
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.
On 1 July 2010 the HST was implemented in the provinces of Ontario and British Columbia,
despite public opinion polls showing that 82% of British Columbians and 74% of Ontarians
opposed it before it was implemented.
The implementation of HST in British Columbia and Ontario replaced the separate GST and
PST charged on goods and services in those provinces.
Evidence from numerous studies demonstrated that tax harmonization raises business investment
and that PST-type taxes slowed provincial economic growth.
British Columbia combined the 5% GST with a 7% PST and implemented the HST at a rate
of 12% and committed to lowering the HST by two further points, to 10%, by 2014.
Ontario’s HST rate is 13%, similar to New Brunswick and Newfoundland and Labrador.
British Columbia residents voted in a referendum in August 2011 to repeal the HST, resulting
in the province reverting to the former PST/GST model, with rates of 7% and 5% respectively,
on 1 April 2013.
Ontario committed to provide a refundable tax credit of up to $260 per adult or child
in 2010-11 to low income people, and British Columbia committed to provide a refundable
tax credit of up to $230 per adult or child in 2010-11.
Federal and provincial tax credits are paid quarterly through the year.
British Columbia also provided a one-time transition payment of $175 to low and modest
income seniors as well as $175 for each child under 18 to every family with children.
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.
On 4 May 2011, an independent panel commissioned by the British Columbia government released
a report on the impact of the HST in that province.
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."
Reception in British Columbia and Ontario 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 researcher David Murrell for the Canadian Centre for Policy Studies, the
net impact of the tax was expected to be "modestly progressive" for the poorest households to
upper-middle-income 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 and Ontarians 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 and a drop in the corporate tax rate will create almost 600,000 new jobs over the
next ten years.
Rejection in British Columbia The introduction of HST in British Columbia
was extremely unpopular, due to its perception as a "tax hike" and the fact that Premier
Gordon Campbell had denied any plans to implement the HST before the 2009 election, only to
introduce it anyways shortly after winning a majority government.
Most of the population felt they had been lied to.
Former British Columbia Premier Bill Vander Zalm launched a petition against the HST in
response to the public outrage.
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
chose not to move forward in the process until the courts 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 sent the issue back to the provincial legislature.
Bauman said Elections BC was correct when it approved the petition on August 11.
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, 2011 was conducted throughout June and July
2011.
In an attempt to appease public anger, the government pledged the referendum would be
binding and that they would abide by the will of the people.
The Question on the ballot was: "Are you in favour of extinguishing the HST and reinstating
the PST in conjunction with the GST?
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; they pointed to the money they would have to pay back to
Ottawa, the lost tax revenue, and the amount it would cost taxpayers to have to switch
back and forth between tax systems.
In April 2011, British Columbia Premier Christy Clark announced a province-wide engagement
initiative to listen to British Columbians' suggestions to "fix" the HST.
Faced with plummeting support and the ongoing anger against the HST, in May 2011 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 provincial 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 26, 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 reinstate the GST/PST system within 18 months, with
a target date of March 31, 2013.
As a direct result, British Columbia will have to pay back $1.6 billion to the federal
government in order to opt out of the HST program.
On April 1, 2013, British Columbia abandoned the HST and reverted to the GST/PST system.
Other provinces Despite the benefits advocated by those in
favour of moving from a cascading tax to a value added tax, in some places it has shown
to be unpopular with the general public.
The 2011 British Columbia sales tax referendum rejected the HST in favour of reverting to
the GST/PST system, and led to the resignation of Premier Gordon Campbell.
2013 implementation In the provincial budget released 18 April
2012, the Government of Prince Edward Island announced plans to introduce a 14% HST to
be implemented on 1 April 2013.
This would reduce Prince Edward Island's provincial sales tax component from 10% to 9%.
It should be noted that the Government of Prince Edward Island was unique amongst Canadian
provinces in that it "taxed the GST".
Since the implementation of the federal GST in 1990, PEI's 10% PST has been charged on
the subtotal of goods which included the federal GST; PST was not charged on services.
This resulted in a combined tax of 17.7% for goods purchased before the 7% GST was reduced
to 6% and then 5% in 2006 and 2008 respectively.
As of 2012, consumers in PEI paid a combined 15.5% tax rate.
The provincial government committed to exempting some items while critics noted that electricity
would see an increase from 5% GST to 14% HST; prior to the HST, electricity was not taxed
by the PST.
The HST was introduced to Prince Edward Island on 1 April 2013 which dropped the tax on goods
to 14% from 15.5% and raised the tax on services from 5% to 14%.
Affected items In Ontario the HST will increase tax on gasoline
and diesel from 5% to 13%.
In British Columbia, the HST applied 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.
The CRA has been actively reassessing many purchasers of newly constructed homes in Ontario
and disallowing their claim for the HST New Housing Rebate.
There is also an HST Rebate in Ontario for rental properties called the HST New Residential
Rental Rebate which provides up to a $24,000 HST rebate on the purchase of a new residential
complex that is first used as a rental property.
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 as: mutual funds, segregated funds and ETFs.
Exemptions Most provinces under HST exempt books from
the tax, either through an outright exemption, or through a point-of-sale rebate.
Nova Scotia exempts residential heating sources from HST, such as fuel oil, electricity used
for residential heating, fire wood, and wood pellets.
Ontario exempts HST from being charged to household goods such as children's clothing
and shoes, car seats, diapers and feminine hygiene products.
British Columbia did the same thing before reverting to PST/GST.
British Columbia exempted HST for public transit fares, BC Ferries tickets, 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.
Prince Edward Island exempts residential fuel oil used for heating, as well as some clothing,
books and personal care items.
See also Goods and Services Tax
Sales taxes in British Columbia Sales taxes in Canada
References
External links "Harmonized sales tax".
Revenue Canada.
"Ontario's Harmonized sales tax".
Ontario Ministry of Revenue.
"British Columbia's Harmonized sales tax".
British Columbia Ministry of Finance.