Report to: General Committee                                                    Report Date: October 5, 2009

 

 

SUBJECT:                          Impact of Harmonization of the Federal Goods and Services Tax and Ontario’s Provincial Sales Tax on Individuals, Businesses and the Municipal Sector

PREPARED BY:               Joel Lustig, Director, Financial & Client Services

RECOMMENDATION:

 

  1. That the report “Harmonization of the Federal Goods and Services Tax (GST) and Ontario’s Provincial Sales Tax (PST) on Individuals and Businesses and the Municipal Sector”  be received;

 

  1. AND THAT the government of the Province of Ontario be requested to:
    • mitigate the impact of the implementation of the proposed Harmonized Sales Tax ( HST) in light of the current economic downturn and gradually phase-in the implementation of HST;

 

    • exempt rental and registration fees of municipal facilities and programs from the application of the HST, or on the other hand, design  measures to mitigate the increased costs of these services to ensure that all residents and especially families, youth and seniors are able to afford and participate in these significant programs which are provided throughout the Town;

 

  1. AND THAT the Mayor be authorized to forward a letter to the Premier outlining the Town of Markham’s position on the HST.

 

  1. AND THAT the Association of Municipalities of Ontario (AMO) be requested to lobby the Provincial Government on behalf of the Town to provide mitigation or exemptions which would ensure the continued affordability of all municipal programs for the Town’s residents.

 

  1. AND FURTHER THAT Staff be authorized and directed to do all things necessary to give effect to this resolution.

 

PURPOSE:

To update Council on the impact of the proposed HST and to obtain Council’s approval to authorize the Mayor to forward a letter to the Premier of Ontario outlining the Town’s position regarding the proposed HST.

 

 

 

 

BACKGROUND:

The 2009 Ontario Budget announced that effective July 1, 2010; the PST would be harmonized with GST to create a federally administered single sales tax rate of 13%. The provincial and federal portions will be 8% and 5% respectively.

 

According to the Province of Ontario, four Canadian provinces and more than 130 countries have adopted a value-added tax structure, which is more efficient than a separate retail sales tax system and should enhance the ability of Ontario businesses to compete and grow. To allow for easy administration, the single tax would generally use the same rules and tax base as the federal GST.  This will significantly reduce the administrative task on businesses that currently must comply with two separate and sometimes conflicting sets of tax rules.  The unified tax base will also facilitate the administration of the single sales tax by the Canada Revenue Agency, improving cost efficiencies in government.

 

Notwithstanding the fact that the harmonization of the GST and PST should benefit businesses which are currently required to comply with two separate sets of tax rules and improve Provincial Government efficiency, the HST will have negative impact on the Town as well as many taxpayers and residents as it will apply to many goods and services that are currently exempt from PST.

 

HST will have the effect of adding an additional 8% tax to items such as gasoline, heating fuel, utilities, professional and legal fees, maintenance and repairs costs, and contracted services as well as recreation programs such as ice rentals, facility rentals, fitness memberships and other municipal services used by residents and in particular families, youth and seniors.

 

Given that the Ontario businesses, municipalities and residents are currently experiencing financial challenges due to economic downturn, the increased costs resulting from the harmonization of the Federal GST and Provincial PST may have a negative impact on the affordability of recreation, fitness and other municipal programs provided throughout the Town and reduce participation of such programs and activities which benefit the overall health and well being of the Town’s residents.

 

OPTIONS/ DISCUSSION:

 

Impacts of HST on Individuals

The new HST system, which blends the 5% federal GST component and the 8% provincial PST component, will now apply to a host of goods and services that are currently exempt under Ontario’s PST.  It includes gasoline, heating fuel, utilities, fast food, fitness memberships, recreational program registration, golf fees, newspapers, magazines, taxi fares, haircuts, dry cleaning, legal fees, accounting fees etc. In other words, individuals will now be required to pay an additional 8% tax on such items.

 

The Ontario Budget proposes to exempt books, children clothing, children’s car seat and feminine hygiene products and diapers from 8% PST portion of the HST.  These exceptions will take the form of point-of-sale rebates, which will also preserve retailers’ ability to claim input tax credits.

 

To help compensate for the increased cost of HST to consumers, the Ontario Budget proposes to provide families with income of less than $160,000 with three one-time payments totaling $1,000 and single individuals with income less than $80,000 with three one-time payments totaling $300 between June 2010 and June 2011.

 

The Ontario Government also proposes $10.6 billion in temporary and permanent tax relief for people over three years to help consumers through the transition, and to provide a permanent personal income tax reduction and enriched ongoing sales tax and property tax relief for low to middle income people.

 

Impacts of HST on Businesses

For businesses, HST will apply to a host of goods and services that are currently exempt under Ontario’s PST.  The major items affected are: gasoline, heating fuel, utilities, waste, professional and legal fees, maintenance and repairs costs, and contracted services.

 

The Ontario Budget proposes business tax cuts that include reductions in the general corporate income tax rate, the small business income tax rate, and the manufacturing and processing income tax rate, among other measures.

 

A small business transition credit up to $1,000 will be available to most businesses, other than financial institutions, with less than $2.0 million in annual revenue from taxable sales.

 

Impacts of HST on the Municipal Sector

Similar to the individuals and businesses, HST will apply to a host of goods and services that are currently exempt under Ontario’s PST for the Municipal Sector.  The major items impacted are: gasoline, heating fuel, utilities, waste, professional and legal fees, maintenance and repairs costs, and contracted services (e.g. capital construction, snow clearing etc.) and many other expenditures.

 

Furthermore the HST may have a negative impact on the affordability of recreation programs such as ice rentals, facility rentals, fitness membership and program registration revenue relating to participants age 14 and above.

 

Notwithstanding the fact that the municipalities have yet to receive the rules and regulations for the proposed HST, it is understood amongst the municipalities that the HST will generally use the same rules as the federal GST. This means the new 13% HST tax will apply to all goods and services that currently attract federal GST. Therefore all goods and services that were GST applicable at 5% before July 1, 2010 will now be HST applicable at 13% after July 1, 2010.

 

The 2009 Ontario Budget confirmed that the municipalities will be entitled to a 78% rebate on the PST component of the HST. The Province’s intention is that this change should be financially neutral to the amount of PST currently paid by the municipalities as a whole. This means that the municipal sector should not incur additional cost as a result of implementation of the new HST.

 

Although the Ontario Government believes that PST/GST harmonization will be “fiscally neutral” for the municipal sector as a whole, it appears that there will be an additional burden and cost impact for the Town and its residents.

 

Staff is currently analyzing the impact to the Town as a result of implementation of the new HST. Based on the preliminary analysis it appears that the 78% rebate will not be sufficient to achieve cost neutrality as indicated by the Province of Ontario. A separate report to General Committee will be brought forward outlining the impact of the HST to the Town’s operating and capital budgets.

 

FINANCIAL CONSIDERATION:

Since Ontario businesses, municipalities and residents are currently experiencing financial challenges due to the economic downturn, Staff recommends that a letter be written to the Premier of Ontario outlining the Town’s position on HST and recommend that the impact of HST be mitigated by phasing in the proposed harmonized tax. 

 

The phasing-in of the new tax will reduce the initial impact of additional costs on many of the services that are currently exempt from the PST and potentially reduce the negative impact on the affordability and reduction in participation in recreation, fitness and other municipal programs for the Town’s residents.

 

 

 

 

 

RECOMMENDED

                            BY:    ________________________          ________________________

                                      Barb Cribbett, Treasurer                     Andy Taylor, Commissioner,

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