New HST Deal On The Cards For BC

by Mike Godfrey, Tax-News.com, Washington

21 December 2011

British Columbia may get a better deal on repaying its harmonized sales tax (HST) loans as ministers discuss extending the time limit by which the province has to return the funds.

When it implemented an HST regime in 2010, the British Columbian government accepted CAD1.6bn (USD1.56bn) in transition funding from the federal 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. The transition back to PST/GST is expected to take around 18 months and cost the province CAD2.2bn by 2013-14. These losses include CAD1.6bn in 2011-12, associated with reimbursing the federal government, and more than CAD700m loss from lower tax revenue and increased expenses over the period to 2013-14.

The province had been due to repay the money by March, 2012, but comments by federal Finance Minister Jim Flaherty suggest that British Columbia may be offered a partial reprieve in this respect. While stressing that there is no question that the loan will not be repaid in full, Flaherty told reporters that ministers may come to an agreement on a revised repayment schedule.

Speaking in Victoria on December 19, Flaherty confirmed that the province was seeking extra time. He said that he had held talks with his British Columbian counterpart, Kevin Falcon, and was hopeful that a deal could be reached "very soon".

Falcon added that the provincial government had always been clear that it would uphold its obligation and repay the money owed. What is being discussed with Flaherty are the terms of the agreement under which this refund must be carried out.

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