Beginning in 2010, Ontario will join the small group of Canadian provinces that have discontinued their own individual Provincial Sales Taxes and instead harmonized with the Canadian Goods and Services Tax.
The Ontario budget proposed March 26, 2009 states that the province plans to adopt Harmonized Sales Tax on July 1, 2010. Under the plan, Ontario’s existing 8 percent PST will be combined with the current GST of 5 percent, creating a single 13 percent Harmonized Sales Tax (HST).
HST has already been adopted in Nova Scotia, New Brunswick, and Newfoundland and Labrador. Under the 13 percent HST, 8 percent of the revenue is allocated to the provincial government while 5 percent is allocated to the federal government.
Harmonizing the federal and provincial sales taxes saves the government money by streamlining tax collection. A single tax is collected instead of two. In addition, unlike PST, HST is a value added tax, meaning businesses can reclaim HST paid on commercial activities by deducting the HST paid on supplies from the amount received from sales and remitted to the government.
Part of the harmonization process includes harmonizing tax exemptions. Although a total list of exemptions has not been finalized, early reports indicate that the HST will include all existing GST exemptions, but not necessarily all current Ontario PST exemptions. According to Ontario Finance Minister Dwight Duncan, the following items will be exempt under HST:
- Books
- Feminine Hygiene Products
- Children’s Clothing and Footwear
- Car Seats and Booster Seats
- Diapers
- New Homes under $400,000
These are the only exemptions that have been announced so far. Many goods and services that were exempt under Ontario PST will be taxable once the HST is in effect. However, Duncan has said that further exemptions may be put in place – farm equipment, for example – before July 2010.
Harmonizing PST with GST is expected to save Ontario businesses $5 billion in taxes paid annually, thanks to organizations being able to reclaim much of it. The Quebec government has also recently expressed interest in harmonization, although no firm plans have been made.
See the Ontario 2009 Budget.
