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

The Globe & Mail is reporting that Prime Minister Harper & Premier Jean Charest may sign a Comprehensive Integrated Tax Coordination Agreement (CITCA) (also known as an HST Agreement) on Friday, September 30, 2011.  In an article entitled "Ottawa, Quebec poised to ink $2.2 billion HST deal", it appears that the agreement promised during the election campaign has been negotiated.

The question for sales tax practitioners is: How different is this CITCA going to be from the model version used with Ontario, British Columbia and Nova Scotia?  It appears that Canada has agreed to a significant change.  Revenue Quebec will continue to collect the tax in Quebec.

However, will Quebec loose the QST and adopt the HST?  In other words, will Quebec lose its naming rights?

When is the implementation date?  Businesses will need time to make necessary changes.

Also, will the HST rate go up, go down or stay the same? One benefit of harmonization is that QST should no longer be payable on the GST included amount.

What point of sale rebates (provincial exemptions from PVAT) will be selected by Quebec?  Will Quebec be restricted to point of sale rebates on only 5% or will they be permitted a higher percentage of coverage for point of sale rebates?

What will happen to zero-rated financial services?  Currently, under the QST regime, many financial services are zero-rated.  Under the GST regime, many financial services are exempt.  Zero-rated is better than exempt because the intermediary financial institutions are entitled to full input tax credits on inputs purchased for use in commercial activities (including zero-rated activities). A shift from zero-rated supplies to exempt supplies will have a significant effect on financial institutions.

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The city of Timmins is a northern Ontario city who is using its municipal voice to request an harmonized sales tax (PVAT portion) point of sale exemption on heat & hydro.  The Daily Press reports in an article entitled "City support resolution fighting HST" that the City of Timmins endorsed a resolution calling on the Ontario government to exempt items of necessity, such as gas and utilities.

It would be preferable if the cities would use proper language as they are not looking for an exemption.  The government of Ontario does not have power to amend the Excise Tax Act (Canada) to add an exemption.  Ontario does have the power to grant point of sale rebates. A point of sale rebate on a taxable good is better than an exemption because suppliers of exempt property and services are not entitled to claim input tax credits in connection with business inputs related to the exempt supply.

The resolution endorsed by Timmins was prepared by North Bay. North Bay's resolution has been forwarded to other Northern Ontario cities including Sudbury, Sault Ste. Marie and Thunder Bay.

Maybe Timmins could seek Shania Twain's voice and the message will get more press.

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If one reads the Ontario - Canada Comprehensive Integrated Tax Coordination Agreement (the "HST Agreement") signed by Minister Dwight Duncan, it is clear that there is more room for point of sale (POS) rebates.  Point of sales rebate means the 8% provincial component of the HST is not payable.

Article 3 of Annex B of the HST Agreement provides:

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. 
 

What this means is that Ontario may grant point of sale rebates (called "POS") in respect of the provincial component of the HST (called "PVAT").  “GST Base”  is defined in Annex B to mean "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”)."  I won't complicate things further by going through Formula D.

Ontario granted a very small number of POS rebates:

• books
• children’s clothing and footwear
• children’s diapers
• children’s car seats and car booster seats
• feminine hygiene products
• printed newspapers
• prepared food and beverages sold for a total consideration of $4 or less

There is a lot of room for more POS rebates.  Tim Hudak has promised if elected October 6th to negotiate a POS rebate in respect of hydro and home heating.  British Columbia negotiated that one from the very beginning.

In this blog, I have the luxury of making my own recommendations.  My first recommendation would be for a POS rebate on healthy prepared meals such as salads (the salads I buy cost more than $4.00).  I also think that bicycles and accessories should not be subject to PVAT (there was an exemption under the Retail Sales Tax).  To promote Ontario culture, family outings and tourism, I think the former retail sales tax exemption for admissions to small theaters should reappear as a POS rebate.  In my view, vitamins should be the subject of a POS rebate. 

In addition, Ontario should determine whether more transactions involving hospitals, nursing homes health care and education can be the subject of a POS rebate.  The HST on these items that require government funding should be reviewed because it is an area of government spending that can be reduced without negatively affecting service.

I could go on, but I will receive many negative partisan comments if I do.  As a taxpayer who knows about HST, I feel that more POS rebates and relief could have been granted from the beginning.  The McGuinty Government chose what POS rebates to grant or chose not to grant many rebates.  Given the insignificant coverage of the POS rebates in the current CITCA, they chose tax revenues over using their POS bandwith.

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