HARMONIZED SALES TAX in ONTARIO

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					                          HARMONIZED SALES TAX in ONTARIO
        The March 26th, 2009 provincial budget introduced sales tax reform with a proposal that
               the province will harmonize the RST with the GST effective July 1st, 2010.

                                          Accommodation

     • Accommodation RST is currently at 5% and moving to 8%.
     • Originally set at the same level as the province-wide RST.

     In the mid 1980’s, the Ontario government reduced accommodation-related sales tax on
     the basis that a more competitive “all-in” price would make accommodation more attractive
     to non Ontarians traveling throughout the province.

                                 Restaurants/Eating Establishments

     • Prepared foods sold by eating establishments are subject to RST of 8%
         –   Tax exempt when meal price of the transaction is less than $4.00
         –   Soft drinks are RST exempt when sold with prepared foods as part of a single
             transaction with the total charge being less than $4.00
     • Alcoholic beverages including premixed drinks are subject to RST of 10%

                                                Retail

     • Most groceries are RST exempt.
         –   RST of 8% is charged on snack foods and candy when sold for 21¢ or more.
         –   Examples of taxable items include: chewing gum, chocolate bars and other candies,
             potato chips, and soft drinks (which includes fruit juice etc).
     • Alcohol sold at retail outlets is subject to RST of 12%




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                                  Newly-Taxed Goods and Services
     For the majority of tourism goods and services, the tax burden will increase following
     introduction of HST.
     Taxes to increase (generally from 5% to 13%):
               • Campground sites (i.e., tent and trailer site rentals); Bed & Breakfast
                  Accommodations
               • Admissions to provincial or municipal attractions (i.e., Royal Ontario
                  Museum, Art Gallery of Ontario, Casa Loma, Museum of Civilization);
               • Admissions to attractions previously exempt from RST (i.e., CN Tower
                  observation deck, Tour Behind the Falls, Agawa Canyon Tour Trains, Wild
                  Water Kingdom, Ontario Place);
               • Tickets to theatres with less than 3,200 seats (virtually all theatres in the
                  province)
               • Green fees
               • Hotel and Motels (from 10% to 13%)
               • Ski lift tickets
               • Park admissions
               • Lessons (e.g., ski or golf lessons)
               • Equipment rentals (e.g., ski, golf, marine
               • Taxi fares
               • Train and boat transportation
               • Charter bus services
               • Meeting space rentals
               • Convention planning and support services
               • Retail sales to international visitors
     Taxes remain the same:
              • Restaurant meals over $4.00
              • Prepared food under $4.00
              • Rental cars
              • Convention exhibit/Audio Visual services
              • Domestic retail sales
     Taxes decrease:
              • Alcohol in licensed premises*
              • Selected amusements/ attractions

     * The provincial budget contains a provision to raise alcohol prices to offset sales tax
     reduction

                                Consumption Focused Tax Structure

     • The current RST structure applies to many purchases made by businesses in the course
       of providing goods and services for sale.



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     • As a result, the tax can become embedded in the price of the finished goods and
       services throughout the supply chain with this hidden RST being passed on to
       consumers.
     • The new single sales tax would be consumption focused, meaning that most businesses
       would be reimbursed for the tax they pay on most of their inputs with the end consumer
       being the party that fully incurs the cost of the tax.

                                            Input Tax Credits

     • In theory, businesses will benefit through the ability to claim input tax credits on the HST
       thereby reducing cost and increasing overall profitability of the business.
     • Businesses selling taxable or zero-rated goods and services would be able to claim input
       tax credits on their purchases, as under the federal GST, with exceptions.
     • These credits are intended to reimburse businesses for the tax they pay in the course of
       commercial activities.
     • This approach would reduce business costs, most noticeably in areas that are taxable
       under the current RST system, and are expected to support business investment in
       Ontario.
     • Moreover, government has argued that the reimbursement to business of the tax they
       pay on inputs should lead to lower prices on these goods and services

                               Hospitality Industry Input Tax Credits

     • The major expense of many hospitality operators is labour and the cost of food products
       used to prepare restaurant meals.
             –   the most positive aspect of harmonization, the creation of ITCs, will not benefit the
                 hospitality industry as much as less labour intensive businesses.
     • Overall the input tax credit mechanism will be a plus for business in both the
       accommodation and foodservice sectors.
             – The accommodation sector has more to gain as this sector purchases a higher
               mix of non-food product.
             – The foodservice sector will not benefit as much due to the high food product being
               purchased.
             – A non-licensed business that mostly purchases direct food product and
               disposables will gain minimum credit return (i.e. QSR -takeout concept).

                             Temporarily Restricted Input Tax Credits

     • Restricted input tax credit for large businesses (those with annual taxable sales in
       excess of $10 million) and financial institutions would be unable to claim input tax credits
       in certain areas.
             –   would apply only to the provincial portion of the tax
             –   the ability to claim the GST tax credits will be unaffected.
     • Restriction applies to the first five years of HST implementation,

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             full input tax credits on their taxable supplies would be phased in over a three
             –
             year period.
     • The restricted ITC’s for large businesses are:
           – Energy, except where purchased by farms or used to produce goods for sale;
           – Telecommunication services other than internet access or toll-free numbers;
           – Road vehicles weighing less than 3,000 kilograms (and parts and certain
             services) and fuel to power those vehicles; and
           – Food, beverages and entertainment.

                              Administration and Transition Support

     • To simplify administration, the single sales tax would generally use the same rules and
       tax base as the federal GST.
     • The unified tax base would also facilitate the administration of the single sales tax by the
       Canada Revenue Agency, improving cost efficiencies in government.
     • The government contends this would significantly reduce the administrative burden on
       businesses that currently must comply with two separate and sometimes conflicting sets
       of tax rules.
     • The 2009 budget contends Ontario businesses would save more than $500 million a
       year in compliance costs

     Business Monetary Support
     • Most businesses, other than financial institutions, with less than $2 million in annual
       revenue from taxable sales, would be eligible for a transition credit of up to $1,000

                                          Point-of-Sale Exemptions

     • To provide targeted relief while maintaining the single administration of sales taxes in
       Ontario, point-of-sale rebates will be introduced for the provincial portion of the tax for
       the following items: books, children’s clothing and footwear, children’s car seats and car
       booster seats, diapers, and feminine hygiene products.
     • And meals under $4.
     • This treatment would also preserve retailers’ ability to claim input tax credits.

                                   Convention Business Exemption
     Under the Foreign Convention Tour and Incentive Program the full HST on the
     components is rebated and not just the GST portion.
             – To date the forms used are the same in all provinces and no change is expected

     Existing challenges:
             – The current paper work needs streamlining due to it’s complexity as many do not
               take advantage of this system and just pass the cost to the traveler.
             – Domestic business is not included in this rebate program.


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                         SPECIFIC INDUSTRY DISADVANTAGES
                                          Consumer Demand

     • Similar to the current applicability of the GST, the new single sales tax will be applied
       widely to the majority of goods and services with very few exceptions resulting in less
       disposable income for consumers in general.
             – Historically, when the federal GST was introduced (also during a slow economic
               period) the hospitality industry saw a significant drop in consumption.
     • Moreover, doubt exists that already faltering businesses may not be able to contend with
       the cash flow implications of increases to the upfront cost of previously RST exempt
       business inputs such as gasoline, insurance, legal & accounting services and electricity
       amongst others.
     • The Timing of this roll out.
     • HST will impact many tourism goods and services not only in the accommodations and
       foodservice sectors but beyond in tourism areas where currently PST is exempt.
     • These include but not limited to attraction admissions, green fees, ski lifts, park
       admissions, recreational equipment rentals, taxi fares, train and boat transportation,
       sport lessons and charter buses.
     • Visitor Scenarios Study completed by TIAO on impact of HST:
            – In all seven scenarios (including all individual and group visitors)
            – The total tax burden increases, in many cases significantly
            – For example, total taxation in the Weekend Getaway scenario increases by some
               4 4 %.
            – The smallest increase in taxes paid (shopping weekend scenario) still results a
               14% increase.

                                              Attractions

     • The Retail Sales Tax Act indicates RST of 10% (instead of the general RST rate) will
       be applied to every admission to a place or places of amusement where the price of
       admission exceeds $4.00.

                                          Convention Business

     • Accommodations and restaurants that offer event services will see an 8% tax increase
       on many conference and function services
             – the cost of catering and event hosting services (room rentals, audio/visual
               services, function gratuities) which are presently exempted from the RST
             – The price of conferences will also increase on specific services such as
               professional destination management companies, professional speakers, and
               shuttle bus services.




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                 Hotel Guest Room Rate and Marketing Activities Funding

     •   A move to the HST will increase the total tax rate by 3% on accommodation stays
     •   DMF funding is no longer to be charged
     •   The $40m tourism funding is not enough
     •   $25m additional for the next two years
     •   Only opportunity for additional funding is to apply a levy over the 13% HST

                                          Limits to Input Tax Credit

     • Domestic business travelers will be able to claim the paid HST but the leisure and
       foreign individual travelers (FIT) will not have this advantage

                   Temp Restricted Exemption to Business of $10M plus

     • Restricted Input Tax Credits
     • Restriction includes F&B
           – Limits incentive for business to do business with F&B operations

                              Medium and Large Business Transition

     • Medium and large businesses will not receive any support for transition costs which in
       many cases will be in the thousands of dollars.

                                Alcohol at Licensed Establishments

     • Under the single sales tax, the provincial rate on these products would fall from ten to
       eight per cent
            – However, to maintain social responsibility and existing revenue, while introducing
              the new single sales tax, the government has made adjustments to current
              alcohol fees, levies and charges, including the following fees paid by licensees:
                         brewers basic fee (55.55 cents per litre for bottled beer, 40.55 cents
                         per litre for draft, and reduced brewers basic fee rates for
                         microbrewery products)
                         beer volume levy (17.6 cents per litre)
                         beer environmental levy (8.93 cents per non-refillable container)
                         the 2% W inery retail store fee
                          wine volume levy (29 cents per litre for wine and 28 cents per litre for
                         wine coolers)
                         wine environnemental levy (8.93 cents per non-refillable container)

                                  Increase in Alcohol Product Price

     • Increases product price for licensees
     • A 2% levy charge to the cost of Beer at the manufacturing level is a concern


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