People in Ontario are about to be hit with rising costs in a big way.
It is difficult enough to deal with all the financial stresses in this
current recession without the government adding more to our plate.
Increased taxes are one of the last things Ontarians can afford and yet
that is what they’ll be getting.
Let’s take a look at this Harmonized Sales Tax:
What is it?
Major
tax reform that will combine both the provincial and federal sales tax
on products and services. The combined tax of five per cent GST and
eight per cent Ontario sales tax won’t change the price on most items.
But many items that used to be exempt from sales tax will no longer be
exempt.
What is no longer PST exempt?
Consumers are most
likely to notice an increase in the price of gasoline and heating
fuels. Electricity will no longer be exempt from provincial sales tax,
nor will tobacco, personal services like haircuts, membership fees for
clubs and gyms, newspapers and magazines, taxi fares and the
professional services of lawyers, architects and accountants. Real
estate commissions will also be taxed.
Driving will cost much more…
All
fuel costs to transport goods to Ontario go up, which means the cost of
food and other retail items may rise to offset the higher
transportation costs.
What is exempt?
Children’s clothing and
footwear, children’s car seats and car booster seats, books, diapers
and feminine hygiene products will remain exempt from the provincial
portion of the single sales tax. Basic groceries, rent, condo fees,
prescription drugs, and medical devices remain exempt from all taxes.
Although they will be affected by the increase in transportation costs
to get them into Ontario!
On new homes, where GST is already
included, the new tax means another eight per cent provincial tax to
houses worth more than $500,000. New homes worth under $400,000 will
not face the additional tax, while those between $400,000 and $500,000
will pay the tax but get a rebate. Purchase of resale homes will
remain exempt from PST, although real estate transaction fees will be
taxed which is not good news for real estate agents or buyers.
Does this affect people outside of Ontario?
Yes.
If for example, you are living in BC and own a mutual fund in your RRSP
from a company based in Ontario (where most are based), then you will
see an increase of 8% on your management fees. When our personal
investments are struggling along with the economy, now we have to deal
with higher costs for money management which in turn, lowers net
returns.
When does the new tax begin?
July 1, 2010.
What
can you do?
Aside from calling your local Liberal MPP and letting them
know what you think, recognize that life is about to get more expensive
in many areas and now, more than ever, is the time to budget and look
at your lifestyle and financial situation. Start with the basics of
your family values and beliefs. Build from there and ensure that
everything in your lifestyle reflects your values. Do not live beyond
your means…this advice is more important today than ever before.
Hi Kristine,
Do you know how this will effect someone buying a new home (has $5G saved so far for down payment with plans to buy in the next year) in Ontario? This has me really worried because of the economy and people are losing their jobs left right and center in my city and even some people are already saying this year they will be having no Christmas. This is really worrying me and depressing me and I just want your input. Please let me know anything you think would be helpful. What I want to know is, would this mean a greater down payment would be mandatory now? Would the cost of homes go up to make up for the loss that is foreseen?
Also how will this effect retirement?
Hi Karen,
This is a confusing area so I have sourced the answer from article Canada: Ontario´s Sales Tax Harmonization: The Good, The Bad And The Ugly, by Alan Kenigsberg March 31, 2009. This is the link http://www.mondaq.com/article.asp?articleid=77182 and the excerpt is below..
“New homes worth over $400,000 will be subject to a significant increase in tax under the harmonized sales tax. While retail sales tax (RST) currently applies to building materials used in the construction of homes, real property is not subject to RST. Thus, a builder building a new home currently must pay unrecoverable RST on many of its supplies (which Ontario estimates to be 2 to 3% of the final sale price of a new home), but does not charge RST on the sale of the new home. Under the HST, while the cost to build a new home will decrease, since builders can claim credits for the sales tax on their inputs, new homes will now be subject to an additional 8% tax. Ontario has proposed a rebate of 75% of the Ontario portion of the HST (i.e. 6%) for new homes sold for under $400,000. This, combined with the decrease in the building costs, which Ontario assumes will be passed on to customers, means that new homes sold for under $400,000 should be effectively taxed at the same rate under the HST as they were under the RST system. However, the rebate begins to be phased out at $400,000, and disappears entirely at $500,000. Thus, assuming again that the builder passes the 2% savings on to the purchaser, under the new system new homes sold for more than $500,000 will be subject to an additional 6% tax. This does not include the additional taxes that will now be payable on the legal fees, inspection fees and real estate agent fees.”
Hi Jennifer,
I believe they are still working through the native status exemption to determine how to handle this with all retailers and service providers. I imagine there will be more info to come as we progress towards the July date.
Hi Kristine, do you know what this means for individuals building a new home? GST has been refunded to the home owners in the past. Is the government still allowing this amount or will they allow the total of both taxes as a rebate?
Kristine, do you have any idea what this means for someone who is PST-exempt? My sister has native status and is wondering how harmonization will affect her.