Harmonized Sales Tax For British Columbia in July 2010

by Mike Godfrey, Tax-News.com, Washington

30 July 2009

The provincial government of British Columbia has announced its intention to adopt a Harmonized Sales Tax (HST), effective July 1, 2010, combining its current 7% Provincial Sales Tax (PST) with the 5% federal Goods and Services Tax (GST). At 12%, British Columbia would have the lowest HST rate in Canada.

HST, combining the GST and PST into a single sales tax, has a chequered history since it was first tried in Saskatchewan in 1991, and subsequently repealed. At present, the three Atlantic provinces – New Brunswick, Newfoundland, and Nova Scotia - operate with an HST, while Ontario announced its intention to merge its PST and GST in its budget in March 2009. The combined HST in each of those states is 13%.

However, the situation in the rest of the country is still very confused. Provinces without an HST continue to have separate GST and PST taxes (except Alberta, which has no PST), while Quebec and Prince Edward Island charge their PSTs on the GST. Furthermore, different legislation at the federal and provincial levels means that some goods are subject to GST but not PST, or vice versa.

HST is collected by the Canada Revenue Agency, which then remits the appropriate amounts to the participating provinces. When fully implemented, British Columbia will save an estimated CAD30m (USD28m) annually in administration costs. In addition, the federal government is to provide the province with transitional funding of CAD1.6bn (USD1.5bn).

British Columbia’s government has estimated that the HST will remove over CAD2bn (USD1.8bn) in annual costs from the province’s businesses - CAD1.9bn (USD1.7bn) of sales tax removed from business inputs, together with an estimated CAD150m (USD139m) in compliance costs.

In order to soften the blow as former PST exemptions are eliminated, the provincial government has announced that consumers will be provided with point-of-sale rebates on a number of products, including gasoline, diesel, books, children’s-sized clothing and footwear, children’s car seats, and feminine hygiene products. For low income families and individuals, a refundable HST credit will also be paid quarterly to help offset the impact of the tax liability transferring from businesses to consumers.

For new homebuyers, there will be a partial rebate to ensure that new homes up to CAD400,000 (USD370,000) would bear no more tax than under the current PST system, while homes above CAD400,000 would receive a flat rebate of about CAD20,000 (USD18,500). There will also be rebates of the provincial portion of the HST for municipalities, charities and eligible non-profit organizations to protect those sectors from paying additional tax.

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