Introduction of the Harmonized Sales Tax in Ontario

On July 1, 2010 the Ontario Retail Sales Tax (RST) will be combined with the federal Goods and Service Tax (GST) to create a federally administered Harmonized sales tax (HST). The HST would have a combined rate of 13% of which 8% would be the provincial portion and 5% would be the federal portion. The HST, except for some exceptions, would generally use the same rules and tax base as the GST.

Although most vendors are also registrants under the GST, businesses would have to make some changes to their point-of-sale and accounting systems to collect the HST. To assist with the transition, Ontario will provide a one-time transition support of up to $1,000, to small businesses with less than $2 million in annual revenues from taxable sales.

Input tax credits

Businesses considered to be engaged in commercial activities for GST purposes and currently entitled to claim input tax credits for GST purposes will be better off under the HST system. Whereas under the RST system, the RST was a cost to the business, under the HST system, the businesses should be able to claim an input tax credit for the provincial portion of the HST in addition to the federal portion.

On the downside, companies engaged in exempt activities that are not eligible to claim input tax credits will see an increase in respect of many costs. Most notably accounting costs, legal fees, other service fees and commercial rent will increase by the provincial portion of the HST being 8%.

Services to individuals

Individuals will see an increase in tax on their costs of purchasing services, including personal services (haircuts, dry cleaning, etc), membership fees (gyms, etc.), internet access, postage and shipping, accounting and legal services and home renovation costs.

Small supplier

Under the HST, Ontario would parallel the GST small supplier thresholds, whereby small suppliers with taxable revenues of less than $30,000 would not be required to register unless they choose to voluntarily. If a small supplier chooses not to register, it would not be required to file an HST return and will not be eligible to claim input tax credits. If a small supplier chooses to register, it would be eligible to claim input tax credits related to its taxable suppliers. The small supplier would also be required to file an HST returns annually.

Rebates and Exemptions

The HST will not be charged on certain items currently not subject to RST. These items include basic groceries, prescription drugs, certain medical devices, child care, residential rents, most health and educational services, legal aid, most financial services, tutoring and music lessons.

Point-of-sale rebates for the provincial part of the tax would also provide exemptions for books, children’s clothing and footwear, children’s car seats and car booster seats, diapers and feminine hygiene products. This treatment would also preserve retailers’ to claim input tax credits.

Buyers of new homes and new residential rental properties will receive a rebate of up to $24,000. The rebate will be 75% of the provincial component of the HST up to a maximum of $24,000. There would be no phase out of this rebate, such that new housing purchased above $400,000 would qualify for the maximum rebate.

Resale homes will not be subject to HST.

Transfer of motor vehicles

Private transfers of motor vehicles are currently subject to RST. Since private transfers of motor vehicles are not subject to GST, they would neither be subject to HST. However, Ontario indicated that it will retain a sales tax on private transfers of used vehicles.

Insurance premiums

RST currently applies to premiums for some types of insurances such as group insurance. Ontario will retain a tax on insurance at 8% after the transition to HST on the same types of insurance currently taxed under the RST. Automobile insurance premiums will continue to be exempt from sales tax.

Special Report on Harmonized Sales Tax (HST) in Ontario

You're viewing our special report on the introduction of Harmonized Sales Tax (HST) in Ontario. We've prepared this report to help you understand how this change will affect your taxes and how you do business.

For an in depth consultation on how we can help you adjust to the new HST on July 1, 2010, please contact us.