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.

Harmonized Sales Tax Expands to Ontario and British Columbia on July 1, 2010

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.