On December 15, 2009, the comprehensive tax reforms announced in the Ontario government’s 2009 Budget were enacted into legislation. Under the legislation, Ontario’s existing retail sales tax (the "PST") will be harmonized with the federal goods and service tax (the "GST"), effective July 1, 2010. Under the new Ontario harmonized sales tax (the "HST") regime, the GST and the PST will be replaced with a single sales tax at a combined rate of 13%.

The HST is implemented under the federal Excise Tax Act and will be administered by the Government of Canada. The HST will generally apply to the same base of goods and services that are taxable under the GST. Therefore, even if the PST was not applicable to certain property and services, the sale of goods and services that are currently subject to the GST will generally also be subject to the HST, but for some exceptions1. Supplies that are exempt under the GST will generally be exempt from the HST2.

Interestingly, in addition to the 13% HST, the PST at a reduced rate of up to 3% will continue to apply to transient accommodation (i.e. hotel and boarding).

Similar to the current GST regime, HST registrants supplying taxable or zero-rated goods and services can claim input tax credits ("ITC"). However, registrants with taxable sales in excess of $10 million per year, and financial institutions, will be temporarily unable to claim the Ontario portion of their ITCs with respect to certain goods or services, including:

  • energy (except for farms or energy used to produce goods for sale),
  • telecommunication services (other than internet and toll-free numbers),
  • road vehicles weighing less than 3,000 kilograms (including parts and certain services) and fuel to power those vehicles, and
  • food, beverages and entertainment.

The following public service bodies will be entitled to partial rebates for the provincial and federal components of the HST:  

Click here to view table.

Transitional Rules and Planning

Businesses should consider the effect of the HST on business decisions and activities because depending on the timing of a supply or acquisition of goods or services, the HST may apply to such supply or acquisition even if an agreement was entered into before July 1, 2010. Accordingly, the following transitional rules should be considered in order to take advantage of any tax savings.

A) Tangible Personal Property ("TPP")

HST applies to consideration due, or paid without having become due, on or after:

•July 1, 2010 when the TPP is delivered and ownership is transferred to the recipient on or after July 1, 2010  

  • May 1, 2010 and before July 2010 when the TPP is delivered and ownership is transferred to the recipient on or after July 1, 2010
  • Provided that all the conditions to claim ITCs are satisfied, the recipient of the TPP will be able to claim any available ITC with respect to the Ontario component of the HST in the GST/HST reporting period of the recipient that includes July 1, 2010.
  • October 14, 2009 and before May 2010 when the TPP is delivered and ownership is transferred to the recipient on or after July 1, 2010
  • This rule will apply to a certain type of non-consumer (e.g. businesses and public service bodies) and such non-consumers may be required to self-assess the Ontario component of the HST.

B) Services

HST applies to consideration due, or paid without having become due, on or after:

  • July 1, 2010 when services are performed on or after July 1, 2010
  • May 1, 2010 and before July 2010 when the services are performed on or after July 1, 2010
  • Provided that all the conditions to claim ITCs are satisfied, the recipient of the services will be able to claim any available ITC with respect to the Ontario component of the HST in the GST/HST reporting period of the recipient that includes July 1, 2010.
  • October 14, 2009 and before May 2010 when services are performed on or after July 1, 2010
  • This rule will apply to a certain type of non-consumer (e.g. businesses and public service bodies) and such non-consumers may be required to self-assess the Ontario component of the HST.  

The HST will be applied to professional services, including accounting and legal fees.

C) Passenger Transportation Services/Freight Transportation Services

HST will not apply to:

  • Passenger transportation services or freight transportation services performed on or after July 1, 2010 that are part of a continuous journey or a continuous movement of goods that began before July 2010

D) Leases

HST applies to consideration due, or paid without having become due, on or after:

  • July 1, 2010 when such consideration is for the part of a lease interval that occurs on or after July 1, 2010
  • May 1, 2010 and before July 2010 when such consideration is for the part of a lease interval that occurs on or after July 1, 2010
  • October 14, 2009 and before May 2010 when such consideration is for the part of a lease interval that occurs on or before July 1, 2010
  • This rule will apply to a certain type of non-consumer (e.g. businesses and public service bodies) and such non-consumers may be required to self-assess the Ontario component of the HST.

E) Intangible Personal Property (e.g. Intellectual Property or Contractual Rights)

HST applies to consideration due, or paid without having become due, on or after:

  • July 1, 2010 for the supply of intangible personal property

F) Real Property (Other than Residential Housing)

HST applies to:

  • Real property if both the ownership and possession are transferred to the recipient on or after July 1, 2010

G) Residential Property

HST applies to:

  • Builders’ sales of newly constructed or substantially renovated homes where both ownership and possession of the home are transferred after June 2010

HST will not apply to:

  • Builders’ sales of newly constructed or substantially renovated homes that are taxable under the GST where, under a written agreement of purchase and sale, ownership or possession of the home is transferred before July 2010