On July 23, 2009, the BC Government made a very significant and somewhat controversial announcement that BC intends to harmonize its PST with the GST. PST harmonization with the GST will become a reality on July 1, 2010.
There has been a lot of discussion in the media about who will win and who will lose in the new tax environment. Clearly for many consumer items that were previously exempt, consumers may face higher prices. For the general business owner, however, eliminating the PST and moving to an HST will remove a significant tax burden on businesses. The PST is an outdated, complex and inefficient tax paid by both consumers and businesses. The PST paid by business is generally incorporated (embedded) into the price of goods and services paid by consumers. The more links in the supply chain between raw materials and final goods, the greater the amount of PST embedded in the product.
According to information from the Province, the Construction Industry will be the single biggest beneficiary of the newly-refundable provincial portion of HST.
Commercial projects will cost significantly less under HST than GST/PST. Residential projects where unit prices are $400,000 or less will be eligible for an HST rebate (similar to the current GST New Housing Rebate) that theoretically will not increase the sales tax cost of the purchase. Some end-users may have to pay more when HST is implemented but, ultimately, the market will likely have much more of an effect on prices such as on new homes, etc., than the harmonization of the GST and PST.
Very few details have been released at this point. Some significant issues still to be presented include transitional rebates, i.e., how the government plans to deal with PST paid on construction materials purchased prior to July 1, 2010 where the sale of the project occurs after June 30, 2010, subject to 12% HST. VRCA would certainly encourage the Ministry of Finance to engage in full consultations with our Association, the Home Builders Association and others to ensure the transition is handled smoothly and fairly.
It may be several months before a comprehensive set of proposed new rules is made public. In the meantime, VRCA and BCCA will continue communicate with BC's Finance officials to ensure the smoothest possible transition to HST for our members.
For more information on the proposed harmonization of the PST and GST, click here
I guess I’m getting ‘old & crotchety’ and ‘rant’ a bit when I see, yet again, the flim-flam, misdirection, and delay tactics that governments use until it’s a fait accompli in their favour. But, having kicked around awhile, one of the first tenets I learned in business was “Consider the Source”. Keith, I’m sure you know who Mr. Beck is, but for others that may visit this blog, I offer the following; … … … “Carl Beck has extensive experience advising clients during sales tax transitions, having been directly involved in the implementation of GST in 1991, Quebec Sales Tax (QST) in 1995 and HST in the Maritimes in 1997. During the implementation of GST, Carl Beck worked as a Senior Policy Officer in CRA’s HQ Real Property Unit where he was able to monitor and resolve many of the transitional complexities as the construction sector moved from an embedded Federal Sales Tax in material costs to a generally-refundable GST on value added components.” roadbuilders.bc.ca> … Personally, I don’t want the economy of the Maritimes … or Quebec, for B.C.. When I read an ‘article’ on the HST, written by Mr. Beck, I have to keep checking whether it is he or the B.C. Government who has written the ‘article’. To be frank, I wouldn’t be surprised if I heard he was a paid ‘consultant’ for this Government. If I were to respond to some of Mr. Beck’s ‘jibes’, we’d end up in a ‘bickering match’ and this blog doesn’t need that. However, the one thing that I really object to is Mr. Beck’s flippant comment that this is a ‘win-win’ situation, in response to my ‘there are winners and losers’ comment. … … So let’s cut to the chase; … The B.C. Government wants to generate more revenue and to do so they have 3 choices; a) increase the existing PST to 8 or 9% (which, of course, would be wildly popular) b) cut overhead (ie: funding and programs … again, wildly popular) or c) slide in the HST which will generate more revenue than increasing the existing PST rate to 9% and simultaneously reduce overheads (the latter, Mr. Beck has acknowledged). The choice is simple. You just have to sell it. You emphasize the positive benefits to the business community and ‘duck at all costs’ the downsides. The beauty of it is … you can throw out some big numbers, which nobody can verify, …. …. SO WHO ARE THE LOSERS … ANSWER… anyone who is the ‘end-user’ …. those who do not get the HST input credit. … Let’s start with the Consumer … that’s you, me … heck, everyone in B.C. … … you take your car in for repairs. Labour is the major component in your bill … not taxed now but will be with HST. You have a repairman over to your home or a contractor … biggest part of the bill … labour … not taxed at 7 % now but will be with the HST! No losers … my ass!!! … Off-the-top-of-my-head, I suspect that services account for more than a 1/3 of the product and service base in this province. So this ‘minor shift’ to HST that the Government is going to impose is going to increase their direct revenue by ((66 2/3 + 33 1/3)/66 2/3) over 50% … and … it is going to come directly out of your pockets, my pockets, and corporate pockets, with few exceptions (those exceptions, of course, will be highlighted by the B.C. Government). How much it affects a specific individual will be directly related to their specific buying pattern for goods and service. The more services that they typically purchase, the greater the impact of the HST … … … … ... BUT THIS IS A VRCA blog … so let’s talk about this industry for a minute. As I noted in my earlier comments, the construction industry is underpinned by a tripod of Materials, Engineering, and Labour. I have already stated my position on materials supply and will avoid getting into a ‘bickerfest’ with Mr. Beck, and, heck, it is generally the smallest component in overall construction costs anyways, depending upon the facility being built, road being built and so on. But let’s be conservative and say Engineering and Labour only account for 50% of overall costs …. With the introduction of HST, the Government immediately increases their revenue base by 100% in this sector of the market … So, who’s the ‘Loser’ here … again ‘he-who-does-not-get-input-credits’ (ie: the building ‘Owner’). …. All the government has to worry about is whether some projects get cancelled because ‘Owners’ shy away from the 3+% increase in overall project costs. The Government is gambling that they won’t. But … if it backfires, there is going to be a lot of collateral damage in the construction industry !!! Obviously effects of HST are going to be as diversified as there are businesses and I could go on, but I run a business and my time is limited as to blogging on this issue … unlike Mr. Beck, where this issue appears TO BE HIS BUSINESS. …. I sincerely hope that other members of our community will weigh in on this issue, even if it is simply to say that they are reading this blog. … This is a very serious financial issue that has been thrust upon us and I sincerely hope that we all consider the ramifications. Respectfully Submitted … Chris Wolfe B.Sc., M.A., President/Vibra-Sonic Control ‘Fight hard the fire when it first ignites or it will quickly get beyond your control’
Mr. Wolfe's blog contains a few good points, and some apparent misunderstandings. Unfortunately, it all gets muddled by his angry rants about the politics of HST (and every other government action). I agree that the politicians did not handle the HST announcement appropriately, particularly with respect to the timing of the election vs. the decision to proceed with HST. Like Mr. Wolfe, I too am generally cynical about government spin. However, the HST is good for BC, in the grand scheme of the economic health of the province. To address a couple of Mr. Wolfe's factual points; 1. Cash flow HST is refundable on purchases, and does not depend on selling the purchased product. Businesses can elect to file refund claims monthly, thereby getting their HST back, in some cases, before they must pay their suppliers. Alternatively, net HST collected can provide a cash-flow benefit to businesses who remit tax only quarterly. 2. Cost Savings to Business and to the BC Government Regardless of positive or negative cash flow (i.e., a temporary plus or minus), the PST that is not paid after harmonization is a permanent cost saving to BC businesses. Companies like Mr. Wolfe's who are "wholesalers" to other commercial enterprises benefit the most because their customers also realize huge savings overall from the replacement of a pervasive, non-refundable PST with a fully refundable HST. The fact that our BC Government also achieves cost savings under HST is also a good thing. Savings from a reduction in provincial tax administration leaves more funds available - estimated at $30 million / yr! - for far more important BC programs like hospitals, schools and roads. 3. "Whenever someone gains, someone loses" Has Mr. Wolfe never heard of "win - win"? Mr. Wolfe's economic mantra, as stated above, would only be true if BC had no financial dealings outside of its own narrow borders. But BC is highly active in international markets, and highly dependent on exports, trade and foreign-sourced investments. We are much more than the sum of our own parts and HST will help us to be more competitive in the international and inter-provincial marketplace. Contractors will be better off sooner rather than later. All of BC will be better off in the long run. Carl Beck, CMA Independent Sales Tax Advisor
Thanks, Chris for taking the time to respond to this important issue. Clearly there will be impact on businesses and individuals, and these kind of discussions are critical if we are to develop sound public policies. Anyone else with an opinion one way or the other is invited to comment.
Keith; Let me preface my remarks by saying that I have a tremendous respect for you, as you should well know. Even now, when you are wrong (as we all are at times) ... you do it with gusto! If you will allow me, as a supplier to the Construction Industry, I'd like to tell you how the HST would affect my company and give you a bit of an idea as to 'the other side of the sword'; As a Wholesaler/Engineering firm, we stock roughly $1/2 million in stock which includes GST, so net stock product cost is ( $ 1/2M div by 1.05) $ 476,191. With HST in place, we will now have to pay an additional $33,333. So our stock value would be $ 533,000 ... in short, I will have made an involuntary contribution to the Liberal/Provincial government of $ 33,333 when HST comes in. The Liberal 'Spin Doctors' will say "Oh...but you get that back when you sell the product. More 'smoke and mirrors' ... Do I not replace product sold. Of course I do. So there is always a residual contribution of 33,333 to this government, unless I increase or decrease my stocking levels. Also ... let's say that I turn product over, on average, 3 times a year. That means that presently I don't attract PST for 4 months. Under HST I have to pay for it upon receipt (ie: NOW !!!). Ever heard of cash flow? WOW .. wish small business got paid 'NOW' instead of 30/60/90 days. HELLOOOH .. the government has now gained SIGNIFICANT credit gains against their deficit/debt. ... and ... I am but one of thousands of small wholesalers supplying the construction industry. I also provide 'Professional SERVICES', which only attract GST at the present time. At $ 180/hr, IF & when the HST comes in, my clients will have to pay an additional (180 x .07) $ 12.60 ... and where does that go ... Duh. Keith ... take a deep breath ... and correct me if I'm wrong ... any construction project consists of 3 major elements, a tripod, if you will; Professional Services (Architects and Engineers), Material Suppliers and Labour. With at least 2 of these 'legs' either being subjected to 'donations' or passing on imposed 'gross fee increases', please tell me ... where are the 'savings' and 'benefits' to the Construction Industry ? Pleeease ... tell me!!!! Let's look at the other side of the Government's 'balance sheet' ... they can cut costs, if you will, 'overhead' !!! with the HST. In simplest terms, they'll simply receive a cheque from the Feds on a regular basis and they can cut all the support system employees from their payroll. In reality, there is probably some Fed/Prov. agreement that will retain some of the existing Provincial auditors and so on, but redundant/overlapping Provincial payroll employees will be released or re-assigned. Net gain? ... to B.C. Government. ... anyone else ... 'not on your bippy'. All of us are suffering with the fall of the worldwide financial markets last fall, to one degree or another. The Provincial Government is no exception. Thing is ... they can impose new taxes ... come 'money grabs' ... all they have to do is 'spin the facts' ... something new ? Come on now !! I spent 6+ years in University, with 4 year's worth of courses in statistics. One thing I learned was; If you want to pervert statistics to your own ends ... it is the easiest thing in the world to effect. To guarantee the result simply define what result you want with anyone with credentials in the field. Think about it, Keith ... any Legal firm has 2 stables of 'experts'; one for arguing one way, the other diametrically opposed. But Government aren't lawyers ... they CONTROL ... so all they need is someone to support their position ... and ... PAY THEM. Funny how results always support a government position. Even if they go to 10 firms and 9 out of 10 are negative to the their position ... which are they going to use ... HellloooH !!! You are the figurehead of a major commercial component in this province. NO ONE ever checks the validity of these 'experts'. Why not call the Government's 'expert' whom they cite and your first question should be 'Who PAID for your report ?'. That should tell you a lot. As a follow up ... try ... 'Your report says that with the introduction of the HST there were significant improvements to the general economy in the Maritime areas that adopted the HST. How did that compare to other regions in Canada ?' As a tertiary question, try 'Were there any other aspects of the general economy in these areas, or one of the areas, that you looked at, that might account for the positive results you found that are unrelated to the transition to HST ?' I could go on ... fact is ... statistics can be perverted ... over 95% of the general public doesn't understand them ... and ... they are 'ripe for the picking' for anyone who wants have 'bullshit baffle brains'. Worth the effort, Keith ... call their cited 'expert'. You have a right to ... and ... I hate to say it ... a responsibility ... to do so. In reading the Government 'Release', I can tell you that there are so many misleading statements it makes me gag. But the Government thinks you, me and the general public are generally 'stupid' ... it is simply a matter of careful spinning. They 'klutzed' on this one.!!! We, business and the General Public, have tightened our belts as a result of the global economic conditions ... we are not about to have a thief add insult to injury by robbing our back pocket while looking us straight-in-the-eye. In the middle of the night, Keith, I hope you wake up with an epiphany and realize that things 'just don't add up' and that you have simply been 'spun' by the Government's 'Spin Doctors'. More than that, think about why a government would introduce anything that was not going to be self-serving. Think about; - the money they SAVE in overhead ... - the SIGNIFICANTLY increased revenue base they gain ... - the improved, immediate payback through SIGNIFICANTLY improved cash flow they benefit from ... and ... finally ... think about where all these improvements to their financial position is going to come from. Whenever someone gains, someone loses. Who do you think it is going to be, Keith ? You are in a position to 'poll' the VRCA's many members. I respectfully suggest that you 'poll' our members for their comments, relative to their specific business ... and ... pay particular attention to the responses from Material Suppliers and Professions ( 2 of the 3 'critical' legs of the tripod that support our industry). I hate to see you duped ... I simply have too much respect for you. All I ask is that you look at the other side of the sword ... ... it is a lot sharper. Respectfully Submitted Chris Wolfe B.Sc., M.A. President Vibra-Sonic Control