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

CCA Bul­letin 14/10

 

May 25, 2010

 

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.