Cashing out on the HST

Cashing out on the HST

The switch back to the Provincial Sales Tax and the federal Goods and Services Tax goes into effect on April 1.

Depending on who you ask, B.C.’s controversial Harmonized Sales Tax was the best or worst thing to happen to the provincial tax code in decades.

It appeared on the political landscape shortly after the 2009 provincial election, a quickly implemented consolidation of the province’s former Provincial Sales Tax and the federal Goods and Services Tax into one all-encompassing new tax that contained far fewers exemptions than its two predecessors.

Despite famously saying an HST was “not on its radar,” during the election campaign just a few months earlier, the Liberal government of then-premier Gordon Campbell announced in July 2009 that the HST was coming.

Part of the reasoning was that Ontario was also moving to an HST and in doing so, would have an advantage over B.C. when it came to being a more attractive province for investment. Some of the Maritime provinces already had an HST as well.

So, with lightening speed for a government, Victoria negotiated with Ottawa and rewrote the province’s tax rules. Between announcing the HST was coming and implementing it took just eight months.

But the timing of the announcement that B.C. was getting an HST, and the lack of public consultation—not to mention the repeated denials by the government that it was considering such a tax leading up to, and during, the election campaign—upset many, including former B.C. premier Bill Vander Zalm.

The colourful one-time leader of the Social Credit Party, who left office amid controversy in 1991, led the public revolt against the HST, prompting the phrase “axe the tax.”

Using the so-far unsuccessful B.C. law allowing for publicly generated referendums, Vander Zalm’s FightHST group gathered more than enough signatures to force a provincewide mail-in vote.

In the subsequent referendum 55 per cent of those who voted opted to turf the HST.

The Liberal government, which had said the result of the referendum would be binding, announced in July 2011 B.C. would return to the PST and GST as it stood prior to the implementation of the HST in 2010. But it would take time to go back to how things were.

Before the vote, Campbell, who championed the HST along with his finance minister Colin Hansen, suddenly resigned as premier, leaving the fight to save the tax to his successor Christy Clark.

Campbell landed on his feet. He was quickly named Canada’s High Commissioner to the UK by Prime Minister Stephen Harper.

Following the referendum, Hansen’s successor in the finance ministry, Kevin Falcon, said the province would return to the PST/GST as soon as possible. But realistically, he added, it was going to take at least 18 months.

A small group of finance ministry bureaucrats in Victoria hunkered down and got to work reversing the tax rules, readying them for implementation on April 1, 2013.

And that bring us to today.

It was not just the government that had work to do following the referendum result in 2011.

Businesses, small and large, across the province had to start preparing for a return the “old” system, less than two years after preparing for the move away from the PST/GST.

And, as local accountant Brian Sanders points out, while large national and multi-national companies that do business in B.C. have departments to work on such an endeavour, for many small businesses, the owner is the person responsible for the change.

“Administratively it’s a big change,” said Sanders, an accountant with McKay LLP in Kelowna who has led workshops for local business on the transition back to the PST/GST from the HST.

“There’s more work involved when there are two taxes.”

Sanders said while the tax proved unpopular with the public, he felt there was a widespread misunderstanding by the public that the introduction of the HST increased everything by 12 per cent.

In fact, he explained, most items were already taxed at seven per cent PST and five per cent GST.

Some of that, he feels, was fuelled by misinformation by opponents of the HST.

“For most people, unless it’s their business, they don’t care,” he said.

While many goods and service were already subject to the seven per cent PST and five per cent GST prior to the introduction of the 12 per cent HST, there were some items added that seemed to get plenty of play in the media—restaurant meals, haircuts, golf, skiing to name a few.

Sanders said a complicating factor for many businesses in returning to the PST/GST system has been a lack of information from the government until recently about how the change back will occur.

“Implementation information was just not available” he said. “The regulations just became available and they are needed to clarify the legislation.”

As of April 1, businesses will once again pay PST and GST on almost everything they buy without the opportunity for the PST refund available under the HST model.

For some types of business, where operators did not collect HST and thus could not claim a rebate such as doctors and commercial landlords, there won’t be much of a change.

But for others, it will be far more complicated.

For instance, new housing took a hit as many potential buyers have held off making a purchase feeling they can save money by waiting for the PST/GST.

Other businesses, like restaurants, welcome the change back.

Mike Koutsantonis, whose family has owned and operated the Olympia Greek Taverna restaurant in Rutland for the last 40 years, admits as a “working tax,” the new system will be harder to administer because he will have to submit the tax he collects to two governments instead of one. But he welcomes the return of the “old” system.

“We’re prepared for it and I think, for the average person, it’s a good thing,” he said.

In the case of restaurants, which saw seven per cent added to its customers bills because under the HST meals were no longer exempt from what used to be the PST portion, it is hoped the move back will spur more out-of-the-house dining.

The introduction of the HST, coupled in large part with the downturn in the economy, has made it hard for restaurants in the last few years,

But Koutsantonis said business has picked up in the last year as people got used to the “new economy.” He said while he heard plenty of grumbling about the HST when it first came in, it appeared people were getting used to it.

His concern now is that the government will stick to its announced plan to return to the tax scenario that existed before the HST went into effect. “But with this government, you just never know,” he said.

Still, he has no reason to believe Victoria will not make restaurant meals once again exempt from the PST. And that, he said, may help businesses like his.

But while the HST has many detractors, it also has supporters.

Local cherry grower Christine Dendy, who actively campaigned to keep the HST, said for the agriculture industry, a return to the PST/GST is bad news.

She said the move will return agriculture to “the dark ages” because it will mean a return to a system where much of the equipment needed in order to run an agricultural business is not exempt from provincial sales tax.

And that means higher costs for growers which  can’t easily be passed on to consumers.

She said the industry and government were working on plans to help growers prior to the introduction of the HST and the tax’s arrival ended that work. The HST, however, addressed many of the issues from a tax point of view.

Going back to the PST/GST model will mean starting from scratch before the previous six years of work (prior to the HST implementation in 2010) stated, said Dendy.

“There is a promise (the government) will look at it once the old system is back but so far we have heard nothing more,” Dendy said.

Growers are concerned about their costs rising especially because they are also hit hard by having to pay B.C.’s carbon tax, despite the fact they produce food.

Dendy said food is supposed to be tax-free, but the producers of that food are not getting any sort of a break.

Under the HST, growers would get tax rebates to off-set their costs of production.

In the end, it was the public who decided the fate of the HST.

While many were upset with the government for the way it was introduced, others may not have understood it, say proponents of the tax.

Either way, on April 1, the HST will be relegated to the history books in B.C.

For the local man who spearheaded the gathering of local signatures to force the HST referendum that killed it, that day can’t come soon enough.

Daniel Thorburn, who worked with Fight HST throughout the Okanagan, said the battle to kill the controversial tax was worth it.

“A lot of it had to do with the way the government handled bringing the HST in,” said Thorburn.

He said he hopes the fact the referendum was successful will prove to have a lasting impact on the province, showing that public pressure can be harnessed to force the government to listen.

“That was monumental. That was history in the making,” said Thorburn. “It was a clear example of democracy in action.”

 

Kelowna Capital News