Canada, BC Agree Terms Of HST Repayment

by Mike Godfrey, Tax-News.com, Washington

13 January 2012

British Columbia has finally agreed a repayment schedule for the federally-backed funding the province received for its failed transition to a harmonised sales tax (HST) regime.

When it implemented an HST regime in 2010, the British Columbian government accepted CAD1.6bn (USD1.57bn) in transition funding from the federal Canadian government. Under the terms of its agreement, this money was to be returned if the new system was scrapped before July, 2015.

Under the old sales tax regime, provincial sales tax (PST) was charged at 7%, with the federal general sales tax (GST) levied at 5%. The HST blended the two taxes, resulting in an overall rate of 12%. British Columbian electors rejected the HST regime in August, with 54.73% voting to return to the previous system.

British Columbia's Finance Minister Kevin Falcon has now announced that the province has concluded an agreement with the federal government for the orderly repayment of the transition funding. Under the new agreement, the Province will have five years to repay in full the money, and Canada has agreed to waive any interest charges over this period.

The Finance Ministry maintains that while the Province has always acknowledged its responsibility for the repayment of the federal transition funding, the actual timing of when that repayment was to occur remained something for British Columbia and Canada to further discuss.

Falcon says that the extended repayment schedule will save the Province debt interest costs that would otherwise have been incurred had the Province had to pay back the full amount right away.

The full cost of the CAD1.6bn repayment will still be booked in the provincial government’s 2011-12 fiscal year.

Recommended