The Globe and Mail newspaper is reporting in an article entitled "B.C. alters health structure to avoid $3.5 million HST bill" published on May 7, 2010 that the British Columbia is undergoing a restructuring. The B.C. Ministry of Health Services and the CEOs of the provincial health authorities have agreed to tuck the Shared Services Organization, which provides services such as computer support and bulk purchasing for the health sector, under one of the health departments / crown entities.
The reason for the reorganization is that the Shared Services Organization would otherwise be required to charge HST on supplies made to the Government of British Columbia and other provincial health entities AND cannot recover all of the HST by way of input tax credits or public service bodies rebates. Hopefully we will get more detailed about the reorganization to learn whether the changes create exempt supplies (instead of taxable supplies) or non-taxable labour. This will help us identify other HST savings opportunities.
The question that taxpayers should be asking is whether the Ontario Government and the B.C Government have undertaken a complete analysis of their internal operations in order to address all situations where the provincial government must pay #HST (and GST) on supplies made in the province (or to businesses in HST provinces) that is not recoverable. We should be asking if HST is going to cause provincial budgets to balloon. We should be asking whether those who are implementing HST recognize the cost effects associated with HST. Proof of understanding the cost effects is the government itself taking steps to minimize the negative effects within the government spending structure.
I would guess that the Ontario Government has not asked each and every government employee and manager and Deputy Minister to go over their budgets to identify unrecoverable HST costs within Ministry, department and Crown entity budgets. Let's wait for the NDP and Conservative opposition parties to find what the governing HST Liberals have overlooked. I will predict a few big budget line items increasing due to unrecoverable HST. This will be a topic for discussion and accountability into the future (after HST implementation). I wonder if the Ontario Ombudsman is going to be busy looking at HST issues.
The other side to this story is that if the BC and Ontario governments must reorganize due to HST,: what about businesses? Both Ontario and British Columbia have said that HST will reduce administrative costs for business. Well, here is an example within the BC Government that shows an INCREASE in administrative costs resulting from the implementation of HST. The reality is that HST will increase administrative costs for certain businesses (especially where amounts are paid for services and other goods and services not subject to provincial sales tax).
The tax officials' counter-argument is that businesses (like the BC Government) can reorganize to avoid increased HST administrative costs. That is correct. Steps may, in certain cases, be made to minimize HST costs. However, the restructuring of business organizations will cost businesses money - legal fees, accounting fees, advisors fees, etc. So, businesses must spend money during the worst economic recession in recent years in order to save HST in the future. In addition, any business that reorganizes will have to ask questions whether their restructuring may be challenged by the Canada Revenue Agency using the GST/HST general anti-avoidance rule. It may not be so simple.