July 1st is not just Canada Day for residents in British Columbia and Ontario; it is the first day of the new Harmonized Sales Tax (HST) in both provinces. So what is all the fuss about and how will it affect employers?
What is in effect now?
There are currently two forms of sales tax in both provinces: Provincial Sales Tax (PST) and the Goods & Services Tax (GST). The GST is federally regulated and applies to all Canadian provinces at a rate of 5%. PST is provincially regulated and is 7% in British Columbia and 8% in Ontario. There are many tax-exempt goods and services and many items are subject to only one of the two taxes.
What is the HST?
The HST will combine both the PST and GST into one tax. This is supposed to create a more efficient value-added tax that will reduce the cost of goods thus making manufacturers and exports more competitive. For further information, please follow the links below
BC – Government of British Columbia HST Credit
Ontario – Government of Ontario – HST Website
What is the fuss about?
Any mention of a new tax brings its fair share of anguish, especially during a recession. There is a general concern that it will simply increase the cost of living for all residents and that consumers will never see the benefits of reduced costs to companies. The general consensus among Canadians is: “What was taxed at 5% will now be taxed at 13% (ON).”
How will the HST affect your employees?
Both provinces are implementing this tax with the intention of stimulating the economy and are taking approaches to reduce the net effect by instituting rebates, credits, and in some cases, a reduction of income tax rates. As expected with any consumption tax, those who spend more will pay more! According to economists, low to middle income earners will see minimal changes to their cost of living; however, the net results are difficult to judge until the tax comes into effect and there are hard numbers to analyze.
How should my company respond to employee concerns?
You may get inquiries from employees in Ontario and British Columbia because of the new HST. As always, companies should align wages with their corporate strategy and individual financial situation. Without data supporting a large increase to the cost of living it will be difficult to convince your leadership team that an immediate increase in wages is necessary. For the time being, it will be best to stress patience with your employees in order for the company to evaluate the net impact of the HST on the employee’s current standard of living.
Other Resources:
Questions & Answers – HST – CGA Ontario
Article – HST Won’t Hurt Much