March 27, 2009
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It was one of the most poorly kept secrets in the province and last night it became official. Effective July 1st, 2010, the province of Ontario will be instituting a harmonized 13 per cent sales tax, similar to the ones used in Atlantic Canada and Quebec.
Ontario Premier Dalton McGuinty opened the province’s books, revealing a $14.1 billion deficit in 2009. With the collapse of the manufacturing sector, a growing number of Ontarians have turned to the government for support and McGuinty deemed the tax harmonization a necessary step to plug the growing hole in the province’s budget.
“This is the most important tax reform we can make to inspire growth across all sectors and kick start the rebuilding of our manufacturing and resource sectors,” said Ontario Minister of Finance and Revenue Dwight Duncan.
In theory, tax harmonization encourages investment and lowers the cost of capital because it allows companies to claim the provincial sales tax they pay on raw goods rather than having to absorb that cost or pass it on to the consumer of the finished good.
That should benefit some sectors, most notably manufacturers. However, on the other side of the ledger, we find that consumers of finished goods which hadn’t previously been subject to a sales tax are suddenly looking at a higher price tag — the residential construction industry being a prime example of this.
The Building Industry and Land Development Association estimated that, without offsets, the harmonization could cost homebuyers an additional $2.4 billion per year, or up to $46,600 on a high-end, Toronto home.
The province has agreed to provide some offsets to help the industry deal with this price increase. For homes under $400,000 there will be a six per cent rebate applied to offset the eight per cent tax increase. Homes between $400,000 and $500,000 will be eligible for a partial rebate, while those above $500,000 will have to bear the full brunt of the eight per cent increase.
