Consumers in Ontario and British Columbia Are Confused About HST
Today, the Toronto Star published and article entitled "Marketers latch on to HST deadline", which rightly points out that sellers are using harmonized sales tax (HST) implementation on July 1, 2010 as a marketing/sales tool to encourage consumers to buy now (before July 1). Examples of goods and services that are being marketed by savy marketers include, cars, gym memberships, homes, bikes and season theatre tickets.
I would like to help consumers with the following (which is not a complete analysis):
Bikes: In Ontario, bicycles are exempt from Ontario retail sales tax (ORST). After July 1, 2010, bikes will be subject to GST and HST in Ontario. As a result, individuals can save the 8% HST component by purchasing a new bike before July 1, 2010 (and taking delivery before July 1, 2010). If you plan to by a stationary exercise bicycle, the ORST exemption does not apply and, therefore, the tax will be the same before and after July 1, 2010.
Homes: Most new homes and substantially renovated homes are subject to GST. Homes are not subject to ORST (or British Columbia social service tax (BCSST)). That being said, the tangible personal property (e.g., lumber, bricks, tiles, windows, paint, etc.) that is used to build or renovate a home is subject to ORST (and BCSST) and is embedded in the cost.
After July 1, 2010, new homes will be subject to HST and the buyer may or may not be entitled to receive a new homes rebate. The HST will be charged on the sale price of the home (not just the tangible goods that were used to build the home). As a result, more tax is likely payable after July 1, 2010.
As a general rule, used homes that have been lived in by an individual generally are not subject to GST (and will not be subject to HST). There are a number of exceptions to this rule that are fact specific.
It is important to note that whether a new home or a used home is being purchased/sold, after July 1, 2010, the real estate agent's commission, home appraisal fees, home inspection fees, legal fees, moving services and renovation services will be subject to HST (not previously subject to ORST). Some buyers and sellers are trying to close deals before July 1, 2010 in order to save the HST component on these fees.
It is important to note that the BCSST rules on services are different than Ontario and some services are subject to BCSST.
Cars: Cars are subject to GST. Cars are also subject to ORST or BCSST. The combined tax on a new car should be the same before and after July 1, 2010.
In Ontario, ORST is payable on private transfers of used cars. This ORST will continue to be payable after July 1, 2010 if a car is sold via a private sale after July 1, 2010. The ORST is paid at the time the change on ownership is registered at the Ontario Ministry of Transportation. If a used car is purchased at a car dealership, the dealer will charge GST and HST.
Gym Memberships: The HST transition rules include a special rule for memberships. If a membership is purchased before May 1, 2010 and paid for in full before May 1, 2010, then HST is not applicable. If a membership is purchased after May 1, 2010 or paid after May 1, 2010, then HST is payable only in respect of the portion of the membership fees attributable to goods and services rendered after July 1, 2010. Marketers must make it clear that the special savings apply only in the membership is paid for in full before May 1, 2010.
Here is the example provided by the Government of Ontario:
Example 14: In June 2010, a person purchases a four-month membership in a fitness club for the months of June through September 2010. The HST would be payable with respect to three of the four months of the membership (i.e., on 75 per cent of the total consideration).
Season Tickets to the Theatre: The HST transition rules provide that if a contract for property and/or services are purchased before May 1, 2010 and paid in full before May 1, 2010, then HST will not be applicable. In order to save HST, some consumers may wish to buy seasons tickets before May 1, 2010.
That being said, in Ontario, amusement ORST is a 10% tax as opposed to an 8% tax. The amusement ORST applies to admissions into places of amusement (including theatres)depending on the size of the venue (there is an exemption for theatres with fewer than 3,200 seats). As a result, depending on the size of the theatre, it may or may not be beneficial to make the purchase before May 1, 2010.
One quote in the Toronto Sun article struck my attention:
“It’s expected businesses would promote those types of sales,” said Tatiana Chabeaux-Smith, a spokeswoman at Consumer Protection B.C. “There doesn’t seem to be anything deceptive — it’s a sales tactic.”
I have to disagree. If the car salesman convinces a person to buy a car now in order to save HST, he/she is providing incorrect information in order to make the sale. This should not be an acceptable sales tactic. I will predict more small claims court cases after July 1, 2010 when pressure tactics to make a sale are discovered and the enthusiasm for the purchase dissipates.
Cyndee Todgham Cherniak is the founding lawyer of LexSage, a boutique international trade law and sales tax firm in Toronto,
