Thursday, September 15, 2011

British Columbia Repeals HST in Voter Referendum

As we have written previously, in 2010, both Ontario and British Columbia entered into agreements with Canada to harmonize the Goods and Services Tax (“GST”) and their Provincial Sales Taxes (“PST”) into a single Harmonized Sales Tax, or “HST.” The HST went into effect July 1, 2010, in both provinces.

But, the HST proved unpopular in British Columbia, and on August 26, a majority of voters in British Columbia passed a referendum aimed at extinguishing the HST and reinstating the PST. The transition back to the PST is expected to take “a minimum of 18 months." The reason for the long transition is that the province must develop and pass legislation and regulations to re-implement the PST and put in place systems to administer it, and the federal government and the province must pass transitional rules to return the province to the GST. Additionally, British Columbia must determine how it will refund to the federal government the $1.6 million provided to the province to aid in its initial transition to the HST.

As a result of the transition, British Columbia will again be subject to the 5% federal GST and the PST will return to its former 7% rate. Because the HST was 12% (5% federal component and 7% provincial component), British Columbians and retailers carrying on business in British Columbia will not see any change in the tax rate. However, retailers should be aware that the tax base for the reinstated PST will likely differ from the tax base for the GST. British Columbia anticipates providing quarterly updates as to the re-implementation of the PST and until implementation is complete, the HST will continue to apply.

No similar voter referenda appear to be on the horizon in any of the other harmonized provinces (New Brunswick, Newfoundland and Labrador, Nova Scotia, and Ontario), but we will continue to keep track of and inform our readers of any developments as they arise.

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