HST

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Frequently Asked Questions

B.C. Harmonized Sales Tax (HST)

I own a small business in British Columbia. What are the impacts of the proposed new HST on my business?

On July 23, 2009, Premier Gordon Campbell and Finance Minister Colin Hansen announced their intention to harmonize the B.C. social services tax (PST) with the federal goods and services tax (GST) effective on July 1, 2010. If passed in both the provincial and federal parliaments, the British Columbia PST will be converted to a value added tax structure and combined with the federal GST to create the BC harmonized sales tax (BC HST) at a rate of 12%.

Advantages of Harmonization to Businesses

enable recovery of PST which is not possible in the current system:
- Businesses selling taxable or zero-rated goods and services will be able to claim input tax credits (ITCs) on their purchases, as under the GST, with limited exceptions.
- Businesses selling tax-exempt goods or services will be unable to claim ITCs as under the federal GST rules. For example, most financial services are GST exempt and therefore ITCs may not be claimed in respect of these services.
- British Columbia’s public service bodies (e.g., municipalities, charities and qualifying non-profit organizations) will be able to claim partial rebates for the provincial portion of the BC HST.
- Large businesses (those with annual taxable sales in excess of $10 million) and financial institutions will be unable to claim ITCs on certain items on the provincial portion of the BC HST. In British Columbia, these restrictions have been announced as being temporary. After the first five years of BC HST implementation, full ITCs, to the extent relating to taxable supplies, will be phased in over the subsequent three-year period.
recovery of PST as input tax credit will lower overall business costs which could potentially pass on as savings to consumers (in reality, this is unlikely to happen as most businesses will push their price to the maximum their customers could bear);
reduction of paperwork as the filing of PST return will be eliminated.

Disadvantages of HST to Businesses

It will broaden tax base rendering some currently PST-exempt goods and services (such as gasoline, diesel fuel, books, children’s clothing and footwear, car seats and booster seats, diapers and feminine hygiene products, food, beverages and entertainment) taxable, hence increase the costs to consumers in some businesses and reduce their consumption.
The new HST will negatively impact the cash flow of businesses due to the collection and remittance of the HST on a broader range of goods and services sold, and the HST paid on business expenses.
The new BC HST will apply to new home sales (used or resale homes will not be subject to the BC HST just as they are not subject to GST). However, purchasers of new homes will be able to claim a rebate equal to 5% of the purchase price up to a maximum of $20,000.

This new proposed tax restructuring has attracted opposition from the general public and some businesses in B.C. To offset the impact of the new HST on those with low incomes, a refundable B.C. HST Credit of $230 per family member for individuals with income up to $20,000 and families with incomes up to $25,000, will be paid quarterly with the GST credit. This is a typical mean government uses to placate public anger when a new tax is being imposed. It is quite possible that amendments will be made to mitigate the political price the B.C. Liberals party has to pay.

[This answer was added on August 11, 2009.]

Who are the winners and losers of this new HST?

This is not a revenue-neutral tax. Of course, the biggest winner is the government. Next to the government, zero GST rate businesses (such as prescription drug stores) also win as they can recap PST paid in the new HST regime and their business is unlikely to be affected as their customers do not pay HST on their goods and services.

The biggest loser is consumers, especially those who consume goods and services subject to GST but not PST in the old tax regime.

[This answer was added on August 20, 2009.]

BC HST Defeated in August 2011

On 26 August 2011, Elections BC announced that 54.7% of voters who cast a ballot in the mail-in referendum voted YES to extinguish the controversial HST.

While the charismatic ex-premier Bill Vander Zalm and his anti-HST group celebrated the success of their campaign, Premier Christy Clark accepted the result of the HST referendum with disappointment. BC Finance Minister Kevin Falcon said the government’s priorities will be to return to the previous PST/GST system within 18 months and begin negotiations with the federal government to repay the $1.6 billion incentive money B.C. received for the HST transition. Falcon admitted that the financial fallout of reverting to the PST/GST will mean that government has to tighten its belt. That means the HST generates more tax revenue for the Province than the returning PST/GST.

Under legislation setting out fixed election dates, the next B.C. election is scheduled for May 2013. Clark refused to comment on whether she would call an election in the fall of 2011. Given the defeat of the HST referendum, it is obvious that BC voters have not forgotten their anger when former premier Gordon Campbell hastily implemented the HST without adequate public consultation. It is unwise and unlikely that Clark will take the risk of calling an election in the surrounding circumstance.

The following are noteworthy to mention:

The B.C. Liberal government would have to deal with a $3-billion budget hit that would include repaying $1.6-billion in transition funding from Ottawa and other challenges including the loss in revenue, the initial administrative costs of transitioning back to a PST/GST tax system, loss of goodwill of some voters.

Despite the demise of the HST, the credit-ratings agency Standard & Poor’s confirmed on 28 August 2011 that it will not affect British Columbia’s AAA rating. This saves the provincial government from borrowing at a higher cost.

Some analysts suggested that rejection of the HST does not necessarily mean a dislike of the tax per se. It is a message to politicians that voters do not like tax decisions made simply by the will of a premier or a party without inputs and consultation from the public. It took British Columbians two years of tremendous campaigning effort and costs to reverse the decision made by the Campbell administration in 2009.

Despite its high tax policy to support left-wing political philosophy, the BC NDP (official opposition party) supported the anti HST campaign. It appears that the motive opportunistic for the purpose of embarrassing the BC Liberal government and to gain political support in the next election.

Beyond doubt, HST is a mean to raise more tax revenue. The insatiable need to raise more taxes is just a symptom of a much larger problem. There is no reason for taxpayers to get too excited on the defeat of the HST because government has to find other ways to raise revenue, by way of taxes or other means such as fees and levies of Crown corporations.
The real cause is the excessively large bureaucracy and expensive government services that are at times inefficient, counter productive or even disastrously harmful. A prime example of the foregoing is the "child protection" industry spearheaded by the Ministry of Children and Family Development (MCFD). PAPA People Assisting Parents Association has uncovered the corruption, identified financial incentives provided by the federal and provincial governments and analyzed how special interests and service providers of the child protection industry milk taxpayers under the pretext of child safety.

In view of the financial fallout after the demise of the HST, it is now time to trim this oppressive and barbaric child removal business which often results in destroying families and creating other costly social problems. This is long overdue and inescapable for any responsible government.

Failure to control the growth of bureaucracy and its power will result in economic crisis and social unrest. In a democracy, politicians need votes to acquire or to remain in power. Since they have the ability to allocate tax dollars, special interests (like unions and self-regulated governing bodies), who have strong influence in elections, jump in. Once elected, politicians bow to the demands (usually more fundings, higher wages, more special power or privileges) of those who supported them. This often results in an overly large bureaucracy and excessive government employees who are non-productive (sometimes counter productive). More taxes are needed to satisfy the insatiable demand for higher wages and more fundings. Without any corrective mechanism, this would eventually collapse the economy of a country. The April-May 2010 financial crisis and social chaos in Greece is an example resulted from the foregoing. The violent demonstration was mainly organized by unions who were unhappy with the cutback of government fundings. The Greek crisis is a warning to Canada. If our government does not correct its free-spending ways, eliminates unnecessary or even harmful services and reduces non-productive civil servants, our country will eventually go bankrupt. At this time, Canada does not have a serious problem yet because of our huge natural resources and a relatively small population. If our government keeps raising taxes to create a large bureaucracy, similar financial problems will haunt us sooner or later.