In the past year, both Ontario and British Columbia entered into agreements with the Canadian federal government to harmonize the Goods and Services Tax (“GST”) and Provincial Sales Taxes (“PST”) into a single Harmonized Sales Tax or “HST.” The HST will be effective July 1, 2010, and will be administered by the Canada Revenue Agency (“CRA”). Ontario and the federal government have already passed legislation implementing the HST. British Columbia has yet to pass its own implementing legislation, but has already taken steps towards harmonization with the federal government.
Following harmonization, the Ontario HST will be 13% (comprised of a 5% federal component and an 8% provincial component), and the British Columbia HST will be 12% (5% federal/7% provincial). Both provincial component rates will be locked in for the first two years of the HST. American and other non-Canadian vendors should take note that under the new HST, imports into Canada of non-commercial goods by or for a consumer who is a resident of an HST province, regardless of the port of import, are subject to both the federal and provincial components of the HST.
In general, the new HST will have the same tax base as the current federal GST, but vendors should be sure to confirm the taxability of their goods and services. The Ontario Ministry of Revenue estimates that there will be no change in tax status for over 80% of goods and services sold to consumers. Certain items currently exempt under the PST, including children’s clothing and footwear, will continue to be exempt from the provincial component of the HST. These exemptions will take the form of a “point of sale” rebate. Basic groceries, prescription drugs, and many other goods and services already exempt under the PST will be exempt from both components of the HST. Ontario has provided comprehensive transitional rules to help businesses properly tax transactions that straddle the implementation date.
Vendors should take a close look at their current tax practices and make sure they are ready to comply with the HST before it goes into effect.