Harmonized Sales Tax Q & A

The recent provincial budget announced that Ontario will move from our present Provincial Sales Tax to a single Harmonized Sales Tax system in July of 2010. The Atlantic Provinces and Quebec already use this harmonized tax system, and a number of business groups, such as chambers of commerce, have lobbied for Ontario to move to the HST. You can read the Ontario Chamber of Commerce position paper on harmonization at: http://taxharmonization.ca/

The HST has many implications for the tourism industry, some positive and some negative.

WHAT IS THE HST AND HOW DOES IT WORK?

In simple terms, the move to HST means that there will no longer be an 8% Provincial Sales Tax. There will be one sales tax: a single tax administered like the GST is now but at a rate of 13% (5% GST + 8% PST). You will collect and process only one tax and remit to the federal government, just as you do now with the GST. The federal government simply passes the province’s share back to Ontario in the form of a transfer payment.

WHEN WILL THE NEW TAX TAKE EFFECT?

The move to the HST is scheduled to take effect in July of 2010.

WHAT ABOUT TAX EXEMPTIONS?

Under the PST, goods that you were going to resell and a few other items like rental boats could be purchased by you exempt from PST. The GST system handles things differently through a system of input tax credits. One reason many business groups lobbied for a harmonized tax was the fact that input tax credits are applied much more broadly than the PST exemption. Almost any goods or services you purchase for your business can be claimed as an input tax credit.

WHAT WILL BE THE IMPACT ON MY GUESTS?

The move to the HST will have several major effects. Because it uses the same rules as the GST, a number of things that were formerly not subject to PST will now be taxed. Two important items for our industry are charter flights and guide services, which will both now be subject to the 13% HST. In addition, the move to a harmonized tax will remove the special 5% PST rate on accommodations and move it to 8%. Obviously, these changes will result in a significant tax increase to our guests. Our preliminary calculations indicate that the expanded input tax credits and announced $40 million dollars in tourism spending, will not even come close to offsetting the increase tax burden on our guests.

WHAT WILL HAPPEN TO THE GST REBATE PROGRAM?

It is almost certain that the visitor GST rebate program will be unchanged.

This federal program has been available in the provinces with an HST and it is expected that it will operate in Ontario exactly as it does in those other provinces. The refund to guests will remain the same at 2 ½%, half of the GST portion of the tax, just like before.

WHAT DOES THE GOVERNMENT PLAN TO DO WITH THIS NEW TAX REVENUE?

In the budget, it was announced that $40 million from these new taxes on our guests would be used to fund the new regional Destination Marketing and Management Organizations proposed in the Tourism Competitiveness Study. We question the $40 million figure, since the competitiveness study estimated that more than $100 million would come from a 3% Destination Marketing Fee, but we certainly support the principle that all of the new tax revenue should be invested in tourism.

HOW IS THIS NEW TAX REVENUE BEST SPENT?

Based on broad input from the industry and some very detailed studies, the competitiveness study arrived at a number of recommendations aimed at doubling tourism revenue by 2020. Changes to marketing were a very small part of the recommendations and were very much overshadowed by concerns over investment in new products, improvements to infrastructure and workforce recruitment and training issues. If we are going to dedicate this new tax revenue to tourism, as we should, perhaps there should be a discussion on how we can best use this money to implement the overall aims of the competitiveness study, not just a single recommendation related to new regional tourism organizations. 


This article was taken from page 8 of NOTO's "The Outfitter" publication, Spring 2009 Issue

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