From The Article: Controversial HST Approved In Ontario
By: Lee Greenberg, Ottawa Citizen

Link to Article no longer available

Happy HST Day!

For all residents of Ontario, today is happy HST day. According to news reports, the Ontario government passed legislation to integrate the provincial sales tax (PST) with the Canadian federal Goods & Services Tax (GST), at a combined new rate of 13% for Harmonized Sales Tax (HST). While this move will anger consumers, and is a sure-fire vote-loser, and the official Conservative party opposition is up in arms claiming that this will unfairly target the working and middle class. Effectively, the move will increase the coverage of the 13% rate to a lot of things, like some services, that were not covered by PST. One of those things will be legal advice rendered to residents of Ontario, which previously was not subject to PST, but was subject to GST, and will now be entirely subject to HST.

The news reports also sort of back-handledly mention in passing that this move is supported by economists, without really going into why. My problem is that the story here is not the feigned outrage of the Conservatives (the federal Conservatives introduced the GST as a business-friendly tax reform ), or the complaints of Ontario Native groups, or of consumers. The story here is the final act of capitulation on Ontario’s arrogance about their ability to “go their own way”. Ontario used to have its own corporate sales tax as well, but Ontario businesses hated having to fill out two sets of forms, and generally having two similar but slightly different sets of rules to deal with on tax matters. Also, Ontario discovered that it just did not have the capacity enforcing its separate tax laws. So as of January 1, 2008, they turned the collection and enforcement of Ontario corporate tax back over to the Canada Revenue Agency. Now they are doing the same thing for sales tax. There will be just one form, and just one agency for businesses to deal with. So the cost of compliance will drop sharply for Ontario businesses. This seems to have been entirely lost in shuffle – this is a good thing. This is a great day for businesses in Ontario.

The tax grab part (an additional $4bn plus in revenue from the broader tax base) is also not really that much of a downer for me. I am in the business of minimizing income tax for individuals of considerable means. And I can do it legally and above board if the facts are good, or if we can alter the facts (in advance) to provide the proper basis for low-tax outcome for subsequent tax years. This means, as I have noted previously, I get told a lot that it is way easier just to not report. Which, of course, I tell them is a bad idea, but no one seems to want to listen if they have convinced themselves that the rules do not apply to them. But don’t get me started on that rant…

So I know that a lot of people who should be paying income tax, do not pay a lot of income tax, either rightly (the way I advise doing it) or wrongly. But everyone in Ontario pays GST/HST on everything. People may try to dodge HST as well, but it is a lot harder to do. Everyone has to buy stuff. Everyone will get charged for it. So this tax increase effectively decreases tax evasion in Ontario, but indirectly.

Also, Ontario is broke, and the manufacturing base of the province is going to continue to take a pounding, so Ontario is going to continue to get broker. Ontario needs the money, and although I would like to see some rationalization, an increase in the indirect tax is better than an increase in income taxes. And also, in its own way, it is a cost-cuting measure as well, because all the people working for Ontario on PST enforcement and support will be moved over to the federal government’s payroll. I also appreciate that it takes a lot of guts for a government to fight the natural tendency to say “we can do it better at home” and give up a series of powers to the federal government effectively.

Overall, from a tax-lawyer’s perspective, the HST is a good thing. It simplifies matters for businesses and catches more of the undeclared economy in the tax net. Now if we could just get Quebec to stop insisting on collecting and enforcing everything itself, we could move towards a more efficient and business-friendly environment all across Canada…