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

In Question Period in the Ontario Legislature on May 31, 2010 (I was in attendance), a liberal MPP threw a soft-ball question to a colleague about the harmonized sales tax (HST) point of sale rebate for aboriginal peoples of Ontario. The Minister responded that on May 27, 2010 (not sure this is the correct date), a Memorandum of Understanding was signed by the McGuinty Government and certain aboriginal peoples.

The answer provided during Question Period suggested that Ontario was waiting for a response from Ottawa.  However, one must look at the Comprehensive Integrated Tax Coordination Agreement (CITCA) to see that Ontario is responsible for point of sale rebates/exemptions. In other words, the McGuinty Government has the right under the CITCA Agreement to say that they want certain point of sale rebates (presumably for tax policy reasons).

Here are the provisions in the CITCA relating to point of sale rebates:

Annex “B”

Provincial Flexibility in respect of Rebates

Definitions

1. Unless otherwise defined in this Annex, terms used in this Annex have the same meaning as in the Agreement to which this Annex is attached. For the purposes of this Annex, the following terms have the following meanings:

   “GST Base” in respect of the Province for a calendar year means the estimated tax base under the harmonized sales taxes for the Province in the calendar year, as determined by Finance (Canada) pursuant to Formula D of Annex “A” (referred to in that Annex as “PROVBASEt”).

   “PVAT-POS Rebate”, in respect of a province, and in relation to a taxable supply of property or a service made in the province, means the provincial rebate under an Act of the Legislature of the province paid to, or credited at the time of supply in favour of, the recipient of the taxable supply, the amount of which the supplier is permitted to deduct in computing the supplier’s net tax under Part IX of the Excise Tax Act.

Provincial Point-of-Sale Rebates

2. The Parties agree that a supply of property or a service may be eligible for a PVAT-POS Rebate in respect of the Province if:
   • (a)   subject to the reasonable capacity of the Minister of National Revenue to administer and enforce such a PVAT-POS Rebate and subject to the reasonable capacity of businesses to comply with such a PVAT-POS Rebate, the definition of the property or service is used in the Canadian System of National Accounts and sufficient data is available from that system to determine the amount of expenditure in the Province attributable to the supply of that property or service; or
   • (b)    other data sources, definitions and methodologies mutually agreed upon between the Parties can be used to determine the amount of expenditure in the Province attributable to the supply of that property or service.
3. Where the Province advises Canada of its desire to designate particular property or services as items eligible for a PVAT-POS Rebate in respect of the Province effective on and from a particular day, the Parties agree that the Province will be permitted to designate those property and services as such items if the total value, as determined by Finance (Canada) in consultation with the Province, of all such items that would be eligible for a PVAT-POS Rebate in respect of the Province immediately after the particular day (including the particular property or services) and that were supplied in the Province during the last calendar year for which the GST Base in respect of the Province has been determined, in accordance with Annex “A”, does not exceed 5% of that GST Base.
4. If a condition under clause 2 in respect of data or definitions is not met, any cost involved in obtaining or establishing such data or definitions for the purpose of achieving the mutual agreement of the Parties referred to in that clause will be the sole responsibility of the Province. If obtaining or establishing such data or definitions benefits the Province and another participating province, the Province may enter into a separate agreement with the other participating province in respect of sharing, between the Province and the other participating province, the cost involved in obtaining or establishing such data or definitions.
5. On and from the Implementation Date, subject to the definitions mutually agreed upon between the Parties, the Parties agree that in general terms the items eligible for a PVAT-POS Rebate in respect of the Province will be, unless such items are removed in accordance with the Agreement:
   • (a)   books;
   • (b)   children’s clothing and footwear;
   • (c)   children’s diapers;
   • (d)   children’s car seats and car booster seats;
   • (e)   feminine hygiene products;
   • (f)   printed newspapers;
   • (g)   prepared food and beverages sold for a total consideration of $4 or less; and
   • (h)   other property or service proposed from time to time by the Province that may, in accordance with the Agreement, become property or service eligible for a PVAT-POS Rebate in respect of the Province.
6. Unless otherwise mutually agreed upon between the Parties, where an item that the Province proposes to be eligible for a PVAT-POS Rebate in respect of the Province is of the same class or kind as an existing item that is subject to an existing PVAT-POS Rebate in respect of another province, the Province agrees that the proposed item will have the same definition as the existing definition in respect of the existing item.

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If under the Indian Act (Canada) and signed treaties with aboriginal peoples in Ontario, aboriginal peoples do not pay sales taxes (and other forms of taxes), then the point of sale rebate should not be factored into the 5% threshold.

This should be a non-issue for Ontario.  If the point of sale rebate is not granted for aboriginal off-reserve purchases (to be used on the reserve), then it would be McGuinty's lack of commitment to this point of sale exemption.

Are Ontario aboriginal peoples closer to a point of sale rebate - yes and no.

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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.

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