On July 1, the Ontario government will introduce the new Harmonized Sales Tax (HST). This means that certain purchases that were only subject to the 5% Goods and Services Tax (GST) before this date, will soon be subject to the 13% HST instead.
While the effect will be minor on certain items, it can make a huge difference on bigger ticket items and you should prepare yourself and take advantage of the window of opportunity that exists before July 1.
You can visit the website of the Ontario Ministry of Revenue for a detailed list of the products and services that will be subject to or exempt from the HST at www.rev.gov.on.ca/en/taxchange/taxable.html.
The following are the major changes that you will experience as a consumer and some financial planning tips for dealing with the upcoming changes and minimizing their impact.
Food and Beverages
Food and beverages are a major expenditure for most families. The good news is that no HST will be charged on basic groceries. Qualifying prepared food and beverages sold for $4 or less will also be only subject to the GST.
The bad news is that alcohol beverages – currently subject to a 10-12% Retail Sales Tax rather than the 8% Provincial Sales Tax – will not go down in price despite being subject to the HST after July 1. This is because the Liquor Control Board of Ontario (LCBO)’s policy of “social responsibility” dissuades a price reduction to keep alcohol abuse and drinkdriving in check.
Home Services
The services in this category that will be subject to HST include electricity and heating, Internet access services, home service calls by electricians, plumbers, carpenters, as well as landscaping, lawn-care and private snow removal services.
While you cannot do much about your ongoing electricity and heating bills, you’d better fix your leaky faucet, repair your furnace or electrical wiring and put your lawn maintenance and snow removal contracts in place before July 1 to save the additional 8% you would need to pay on these services.
Accommodation & Travel
Currently, hotel rooms, taxis, camping sites, as well as domestic air, rail and bus travel originating in Ontario are only subject to GST. After July 1, all of these services will be subject to HST. Travelling after June – unless you purchased your tickets a long time ago – will cost more.
Home Renovations
This can be a major expense item and unfortunately while it is currently only subject to GST, all home renovation expenses will attract HST after July 1. Therefore, you may want to hurry up and act on your renovation projects or they will cost you 8% more than you planned for.
Vehicles and Travel
The one major item that will impact all drivers is that gasoline and diesel fuels – now only subject to the GST – will be subject to the HST after July 1. Therefore if you are contemplating the purchase of a new car, fuel efficiency should be even more important than before.
While most expense items having to do with cars such as vehicle parts, lease of a vehicle, auto insurance, oil change, tires, and purchase of vehicles from a dealer will experience no change in the way they are taxed, the private resale of vehicles while not subject to HST, will be subject to the Retail Sales Tax (RST) at the rate of 13%, instead of the current 8% to help level the playing field between sales by dealerships and private sales. Therefore, if you are thinking of selling your car, you should try and do it before July 1.
Home Purchases
Perhaps the biggest impact of the HST as far as one time transactions are concerned will be felt by purchasers of new homes that are priced over $400,000.
While resale homes will not be subject to GST or the new HST and new homes priced under $400,000 will only attract GST, new homes that are valued over $400,000 will be subject to the HST after July 1.
There is some relief for buyers of new homes in the form of the new housing rebate which will be 75 per cent of the Ontario component of the HST, up to a maximum of $24,000. The rebate is designed to ensure that buyers of homes priced up to $400,000, will on average, pay no more tax than under the RST system. However, you should note that the applicable RST on building supplies is embedded in the price of the home.
Also, new homes purchased as primary residences and valued at $400,000 or more, will be eligible for the maximum new housing rebate of $24,000. Still, the impact of the HST on the purchase of a new home valued at over $400,000 can be substantial and warrants planning to take advantage of the window of opportunity that exists before July 1.
Of note for those thinking of selling or buying a home is the fact that real estate agent fees and legal fees will also be subject to the HST after July 1. This is yet another incentive to make sure the closing of your real estate deal is planned for before the introduction of the HST.
Health Products and Services
The major change in this category is that massage therapy services and vitamins that are only subject to GST now, will be subject to the HST starting 62 whatever magazine | summer 2010 business & finance on July 1. Therefore, you may want to stock up on your vitamin supply (keeping in mind the expiry dates of course) and enjoy your last sessions of pre-HST massage therapy.
Children’s Expenses
Parents should note that after July 1, ballet, karate, trampoline, hockey and soccer lessons, as well as hockey rink and hall rental fees will be subject to the HST.
Therefore, it is advisable to pay for your children’s classes on an annual basis in advance of July 1 to save on the additional 8% payable after that date.
Memberships, Entertainment and Sports Equipment
If you are a golfer, the bad news is that green fees for golf will be subject to HST after July 1. Your gym and athletic membership fees that are only subject to GST now, will also be subject to HST come July 1.
Tobacco Products
If you are a smoker, your habit is about to become 8% more expensive as cigarettes and other tobacco purchases will be subject to HST.
If you are thinking about quitting, you should purchase your supply of nicotine replacement products before the end of June too, as those will become subject to the HST as well.
Professional and Personal Services
Being fit and looking good are going to be more costly after July 1 as the services of fitness trainers as well as hair stylists/barbers, aestheticians (manicure, pedicure, facials), will be subject to the HST rather than just the GST.
Last but not least, funeral services that are now only subject to the GST, will become subject to HST after July 1. Therefore, if the idea of a pre-planned funeral service is appealing to you then you should act on it before July 1.
• Tina Tehranchian is a branch manager and financial advisor with Assante Capital Management Ltd. in Richmond Hill and can be reached at 905-707-5220 or through her website at www.tinatehranchian.com. The views and opinions expressed by the author are not necessarily those of Assante Capital Management Ltd.
