The HST Blog : Canada Harmonized Sales Tax Lawyer Cyndee Todgham Cherniak for Assessments, PST & RST Issues in Ontario, British Columbia & Quebec

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Aboriginal peoples of Ontario are losing a point of sale exemption with the harmonized sales tax (HST) implementation on July 1, 2010.  Under the Ontario retail sales tax system, an aboriginal individual (e.g., a status Indian), a band and others could make purchases off the reserve and receive a point of sale exemption.  It was sufficient to show a vendor a status card. 

Under the federal goods and services tax (GST) rules, the general rule is that only purchases on the reserve, purchases delivered by the supplier to the reserve and certain purchases in remote areas by approved suppliers are not subject to GST.  All purchases of goods and services off the reserve for consumption, use and /or enjoyment on a reserve at taxable (unless delivered to the reserve by the supplier).  The mistaken belief is that there is no way to know for certain that an aboriginal person will not re-transfer the goods or use the services off the reserve.  Sorry - that is the thinking of the CRA auditor.

The Agenda with Steve Paikin was following and discussing this important and relevant issue before many others (in October 2009).  With HST on the horizon and no clear resolution to the problem, the Chiefs of Ontario are speaking out.  Canada News Wire reports

 "[Ontario Regional] Chief Angus Toulouse points out that the move to implement the HST was done without an economic impact analysis to inform First Nations what the anticipated financial impact will be. The report released today was commissioned by the Chiefs of Ontario organization and estimates that First Nations in Ontario will pay anywhere from $85 to $120 million in the first year of the HST, and that this will continue to increase as incomes and expenditures rise in future years. For a segment of the population that lives at or below the poverty line, and are struggling to build their economies, one wonders if it is really necessary for governments to collect another $100 million annually from the First Nations...

The report, prepared by Dr. Fred Lazar of the Schulich School of Business at York University, estimates that this $100 million represents only 0.1% of the estimated aggregate revenues that the Government of Ontario will receive. "When you look at the expected increase in revenues that the government of Ontario will experience, especially following the three years of temporary tax relief and credits, they will come out significantly ahead," stated Regional Chief Toulouse. This increase in revenues will be due to the broadened tax base created by the harmonization of the taxes. The report estimates that at the present time only 46% of consumer expenditures are subject to the PST and that with the move to the HST, this figure will climb to 56%. "

What is next? An article in the Toronto Sun dated April 21, 2010 entitled "Aboriginal leaders girding for HST battle" raises the concern that various forms of protest may be on the horizon because the government leaders are not listening or acting to rectify the loss of the point of sale exemption in Ontario. In December 2009 at the time of the legislative debates of the Bill 218, aboriginal peoples engaged in peaceful protests at the Ontario legislature.

There are two sides to the underlying problem.  On the one hand, the Canada Revenue Agency and the Federal Government have experienced a number of GST shams connected to reserves.  On the other hand, a very small number of aboriginal peoples making such mistakes should not disadvantage an entire class of peoples.  On the one hand, a tax system requires certainly.  On the other hand, the tax system should reflect the unique (and disadvantaged) circumstances of groups of peoples - many aboriginals live below the property line and every cent is needed for necessities of life.  On the one hand, tax systems are built on paperwork and reporting.  On the other hand, aboriginal peoples in Ontario are disproportionately under-educated and are less able to read and complete complicated forms that are not user-friendly. 

The balancing of interests needs to be fair.  Ontario had the balance correct under the Ontario retail sales tax regime.  The balance needs to be restored under the HST regime.  Those who engage in tax avoidance and scams and shams can be punished.  Innocent peoples should not be disadvantaged.