CCA Bulletin 14/10

May 25, 2010

Harmonized Sales Tax: What does it mean for the arts?

Just the Facts

In December 2009, the Ontario legislature and the House of Commons and Senate enacted legislation for a harmonized sales tax (HST) to be implemented on July 1, 2010. Bill C-62 received Royal Assent in the House of Commons on December 15, 2009 and laid out the Provincial Choice Tax Framework Act.

This legislation replaces Ontario’s retail sales tax (RST) with the HST. The HST will have a combined sales tax rate of 13% (combining the existing 5% federal goods and services tax (GST) and 8% from Ontario). All businesses currently registered for GST will automatically be registered for the Ontario HST on July 1, 2010. British Columbia is also set to merge its 7% provincial sales tax with the GST on July 1, 2010.

A number of provinces have harmonized their provincial sales tax with the GST to create the harmonized sales tax (HST). The HST applies to the same base of taxable goods and services as the GST. HST has already been established in New Brunswick, Nova Scotia and Newfoundland and Labrador. In Québec, Revenu Québec administers the GST/HST.

The present bulletin offers an overview of the information currently available on HST and on how it affects cultural goods and services.

Tell me more: a regional overview…

Eastern Canada

In New Brunswick, where the HST has existed since 1997, there was initial talk of exemptions for certain cultural products and services. However, that plan was not realized in the final implementation of the HST. HST was also implemented in Nova Scotia and Newfoundland in the same year. When comparing New Brunswick, Nova Scotia and Newfoundland to other provinces without HST, particularly Prince Edward Island, general consumer prices fell approximately 1% in the first year after HST was implemented.

One significant difference between the implementation of HST in these three Atlantic provinces versus Ontario and British Columbia is that in Atlantic Canada, restaurants were already charging PST. That means that HST did not cause an immediate jump in price to a person’s favourite Starbucks coffee, but HST in BC and Ontario is a different story!

British Columbia

After crunching the numbers on goods and services applicable under the reformed tax, it appears that costs will increase in Ontario by approximately 1.5%, while in British Columbia, costs may rise by 3%.

Amir Ali Alibhai of the Vancouver Alliance for Arts and Culture, commented to his membership on BC’s HST saying, “This is a new agreement that potentially affects our sector as well as others, like restaurants and hotels. Everything that is currently subject to GST will also now be subject to PST. The combined HST will be 12%. I understand that current rebates for GST will also apply to the HST. The HST seems to function just like the GST, but at a higher rate. (…) we plan to provide tools for you to assess the impact of the HST on your organizations and practices. Once the impacts are understood, we can develop strategies to mitigate them and advocate for specific exemptions or rebates.”

In British Columbia, the Federation of Community Social Services of BC has also published a paper titled: The Impact of the HST on BC’s Non-Profit Community Social Services Sector.

Ontario

Orchestras Canada, along with Ontario’s Nonprofit Network, created tools to assess the impact of HST. In November 2009, they published Anticipated Impact of the Harmonized Sales Tax on Ontario’s Nonprofit Sector. This tool outlines how organizations in the nonprofit sector, depending on their circumstances, fall into one of four different classes of sales tax status. The report goes on to give recommendations for nonprofits on how to understand and work with new HST provisions.

In Ontario, arts professionals like Katherine Carleton, Executive Director of Orchestras Canada, claim that HST is a “good news, bad news” story. Carleton says ticket sales may be affected as consumers adjust to paying more tax on admission.

The cost of renting gallery and art studio space will also be subject to the 13% tax. Under the current tax system, rent is subject to only 5% GST. “In many cases, the artists are just going to swallow the [additional] costs,” said Don Monet, owner of Cube Gallery in Ottawa’s west end. But Monet adds that the HST presents some benefits to working artists. On their tax returns, they can deduct the full 13% paid on art supplies, instead of just the GST. “The PST [is] a cost to them,” said Monet. With HST, Monet notes that artists can deduct the full cost of the tax.

Yasir Naqvi, the Liberal MPP for Ottawa Centre, says even though tickets or art may cost a little more, the HST scheme does include incentives for non-profits and small businesses, including artists, many of whom are registered as small businesses. Since many theatre, dance and music companies are registered non-profit groups, they will now be eligible for rebates on the HST they pay on their inputs and supplies, and Naqvi says this will lower their operating costs.  

The Canadian Arts Presenting Association also developed a tool to aid artists and arts organizations in interacting with the HST. In an attempt to better understand the Harmonized Sales Tax (HST) and its impact on its members, CAPACOA joined forces with a group of arts service organizations with members in Ontario to study the tax. One project was the development of a tool to determine the impact that the HST has on arts organizations. This template was prepared by Michael Herrera, C.A. and Heather Young (author of Finance for the Arts in Canada).  To make it easier, the tool uses the same set-up as the new CADAC system. Thus, if an organization has completed a grant request to either the Ontario Arts Council or the Canada Council, the same break-down of account categories can be used.  

Similarly, the Toronto Arts Performing Arts Alliance (TAPA) joined a group of other membership driven organizations to better understand the Harmonized Sales Tax (HST) and to tackle the practicalities of this situation head-on. The focus in the next few months will be on impact analysis, advocacy and implementation/transition materials. TAPA has been sending regular updates and information about the HST to the membership as new information arises. Some are already available online.

Québec

Québec’s HST (TVH) regime has been in place since the 1990s. Recently, the Québec government announced that it would raise the Québec Sales Tax (QST) from 7.5% (present) to 9.5% within the next two years, taking advantage of the reduction of the GST.

Within Québec’s HST regime, artists who receive more than $ 30,000 in fees (professional fees) and/or copyrights must register with the Department of Revenue of Québec to get tax numbers. They then charge the producers and broadcasters with whom they do business. Arts organizations, artists' associations and non-profit organizations can receive a refund of 50% of taxes paid during a fiscal year.

During the last provincial election, the Liberal Party promised to withdraw the QST on cultural products and events as it had already done with books. This would result in an estimated revenue loss of $50 million per year to the government. Many organizations within the arts sector believe that this promise is difficult to implement because it would require defining what qualifies as a cultural good or event. This could have national and international ramifications under NAFTA.

Furthermore, arts organizations have taken the position that instead of foregoing the $50 million currently raised, the Québec government should reinvest this amount directly  in the sector. They argue that this would provide better assistance to the arts and culture sector in the province. As things currently stand, the Liberal government has not included the abolition of the QST on cultural products and events in its 2010 budget, nor has it committed to giving the proceeds to the arts and culture sector.

And if you want to know even more…

To find out more about HST, go to the Canada Revenue main page on HST. Also go to the Ministry of Ontario’s page to see the transition rules for Ontario’s HST.

There are a number of goods and services which are exempt from the list of taxable items. Among them, cultural activities like music lessons are exempt, along with most goods and services provided by charities. For more information, see Guide RC4082, GST/HST Information for Charities, certain goods and services provided by non-profit organizations, governments, and other public service bodies, such as municipal transit services and standard residential services such as water distribution. For more information, see Guide RC4081, GST/HST Information for Non-Profit Organizations and Guide RC4049, GST/HST Information for Municipalities.

David Douglas Roberston, a partner specializing in tax at Fasken Martineau DuMoulin LLP describes the impact of HST in his piece: Sales Tax Harmonization: The facts and nothing but the facts. Mr. Robertson analyzes the history of HST in Canada as well as the impact and revenues it has already had on provinces which previously adopted HST.