Taxes may be unpalatable and inevitable, but how to best serve them up is anything but simple. After turning away from the issue repeatedly throughout his tenure as premier, Dalton McGuinty was compelled to take a stand on harmonizing the two sales tax systems in Ontario. The change takes effect in July 2010. The Ontario Chamber of Commerce (OCC), a lobby group aiming “to foster sustained economic growth,” released a commissioned report entitled “Made in Ontario – The Case for Sales Tax Harmonization” at the end of January this year. The 110-page report strongly suggested McGuinty’s government institute a harmonized system to stimulate the flagging economy. “Tax reform options exist that yield benefits to households, businesses and even governments in terms of reduced costs, higher incomes and improved productivity,” states the report. “While tax reform will not solve all the economic challenges confronting the province at this time, it is an essential element in a strategy to confront these challenges.” McGuinty had no choice but to address the issue in the March budget. “He’s resisted it to this point. But (the OCC has) made it a priority issue in the public eye, so they’re being forced to deal with it,” says Orillia District Chamber of Commerce president Doug Downey. “They have to do something.” Since the goods and service tax (GST) was introduced in 1991 by then-Prime Minister Brian Mulroney, New Brunswick, Nova Scotia and Newfoundland have all adopted amalgamated methods of collecting federal and provincial sales taxes (PST). With the exception of Alberta and the territories (which have no regionalized sales tax), the remaining provinces maintain parallel procedures. Instead of a simple PST-plus-GST calculation, each maritime entity with HST has customized their formula taking into consideration the needs of regional economic engines. The customization factor is a key point of contention in Ontario. While the suggestion for tax reform is being supported in general by business leaders across the province, the sectors facing potential tax hikes under a straight-forward switch have quickly responded with reports of their own recommending exceptions to the new rules. The most vocal in this effort is the industry with the most money at stake. Representing new-home builders (and including new retail properties and renovations in the package), the Building Industry and Land Development Association (BILD) had real-estate consulting firm Altus Group research its own case. The extensive document entitled “New Housing is Different: Implications for Sales Tax Harmonization on New Home Buyers in Ontario” was released in early March. Because the industry now enjoys a largely PST-free existence, and most HST models take their lead in the GST, the new combined tax could mean an additional eight-per-cent tacked to the price of new homes. The BILD report states this as counter-productive to an economic stimulus agenda. “All told, harmonization of PST and GST without any offsetting measures by the provincial government would rip $2.4 billon dollars out of the pockets of new homebuyers, slamming the homeownership door shut in the face of many Ontarians," said Stephen Dupuis, BILD’s president. The OCC reacted to the follow-up report saying the two proposals were not mutually exclusive. Two days after the BILD report, the OCC sought to remind Ontario that it was only the implementation model that was at question, not the concept of HST in general. In the release introducing the report, Dupuis says builders are not fighting harmonization, but for fair treatment of housing under a harmonized sales tax regime. “The reason housing gets hit so hard is that it is the biggest of the big-ticket items and it’s not currently subject to PST for good reason,” he said. “First of all, the housing industry bears costs other industries don’t bear,” says Sheila Hissa, executive director of the Greater Barrie Home Builder Association. Municipal taxes and fees, for example, add to the high cost of doing this business. “We’re the most heavily taxed industry after alcohol and tobacco.” Agreeing with the BILD report, she says new-home sales are not a one-time benefit for the province. It’s a sale that continues to produce economic benefits (through property taxes and home maintenance) for the lifetime of the house. “Taxing the full price of new housing would fail to recognize that new housing is an investment good,” says the report. “A new home provides shelter services not only in the year of purchase, but for many years into the future. “Full taxation of new housing also is in conflict with the non-taxation of business purchases of buildings, machinery and equipment, which is touted as a significant benefit of the HST over the existing PST.” “The housing industry (has been recognized) as the economic engine that drives the province,” says Hissa, who has supported BILD’s position by meeting with local MPP Aileen Carroll, and making supporting submissions. “That’s the only way in a practical sense that it could be applied,” comments Orillia chamber president Downey. “Because you couldn’t increase provincial revenue that significantly and not have it affect the economy.” Across sectors, however, the push for HST is sound, says Rob Newman of Newman Accounting Solutions, who provides out-sourced chief-financial-officer services to business. “It would be a good idea to have it come in,” he says. In addition to reducing the paperwork and labour necessary for compliance at the business level, Newman says it would also decrease bureaucracy at the government level. “It would also save the Ontario taxpayers because it wouldn’t need the retail sales tax department anymore and it would eliminate one level of audit,” he explains, regardless of which government would administering the HST. Although some prices will go up as a result of a new system, others will come down resulting in what’s projected to be a less-than $100 tax increase overall. The OCC says this out-of-pocket expense would be more than compensated by other savings. Newman also says lower-income families who are currently receiving GST rebates, are also being mentioned in the new proposal, which suggests a similar consideration. Downey, who is a lawyer by trade, says McGuinty needs to be decisive in his handling of the economy. Uncertainty breeds hesitation and that’s not in the best interests of the province right now, he said.
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