What is the Ontario Harmonized Sales Tax?
As part of its 2009 provincial budget, the Ontario government tabled a bill on November 16, 2009 to introduce a harmonized sales tax (HST) in Ontario.
The harmonized sales tax being proposed by Ontario will combine the eight percent provincial sales tax with the five percent federal goods and services tax (GST) to create a single 13 percent harmonized sales tax (HST) administered by the federal government. The Ontario HST is scheduled to take effect July 1, 2010.
Why is Ontario Switching to the HST?
The Ontario government says Ontario's current dual tax system puts Ontario businesses at a competitive disadvantage and implementation of a single sales tax would bring the province into line with the most efficient form of sales taxation around the world. They say the tax reform being proposed, including the HST, will create jobs and position the Ontario economy for future growth as the province emerges from the economic downturn. They also claim the single sales tax will reduce paperwork costs for business by more than $500 million a year.
Tax Relief to Offset the Ontario HST
The 2009 Ontario budget will provide $10.6 billion over three years in personal income tax relief to help consumers through the transition to the single sales tax. This includes personal Ontario income tax cuts and direct payments or rebates. It will also provide $4.5 billion in business tax relief over three years, including reducing the corporate income tax rate to 10 percent over three years, cutting the small business tax rate and exempting more small and medium-sized businesses from corporate minimum tax.
What the Ontario HST Means to Consumers
For the most part consumers will not notice a large change in prices. However, there are many items currently exempt from the provincial sales tax that will no longer be exempt. They include:
- heating fuels
- personal services, such as haircuts, membership fees for clubs and gyms, magazines, taxi fares, professional services for lawyers, architects and accountants, and real estate commissions.
The HST will not be charged on:
- basic groceries
- prescription drugs
- some medical devices
- municipal public transit
- health and education services
- legal aid
- most financial services
- child care
- music lessons
- residential rents
- condo fees
Currently the PST is not applied to those items.
There will still be a few exemptions from the provincial portion of the sales tax:
- children's clothing and footwear
- children's car seats and car booster seats
- feminine hygiene products
- books (including audio books)
- prepared food and beverages sold for $4.00 or less
- print newspapers
The Ontario HST and Housing
No HST will be charged on
- residential rents
- condo fees
- purchase of resale homes
The HST will be applied on the purchase of new homes. However, homebuyers will be able to claim a rebate of some of the provincial portion of the tax for new homes priced up to $500,000. The rebate for new primary residences under $400,000 will be six percent of the purchase price (or 75 percent of the provincial portion of the tax), with the rebate amount reduced for homes priced between $400,000 and $500,000.
Buyers of new residential rental properties will receive a similar rebate.
The HST will apply on real estate commissions.