On March 26, 2009, the Ontario Government announced in its 2009 budget the harmonization of Ontario’s 8% Retail Sales Tax (“PST”) with the federal Goods and Services Tax (“GST”), which has a current rate of 5%, into a single value added Harmonized Sale Tax (“OVAT”) at 13%. The OVAT is expected to come into force July 1, 2010 and will be administered by the Canada Revenue Agency (the “CRA”) in a similar manner to the GST. Registrants will file a single sales tax return with the CRA.
The OVAT will apply to virtually all property and services sold in Ontario that are currently subject to GST, including new housing (with a rebate up to certain thresholds); however, certain children’s items, books, feminine hygiene and other products will be exempt from the provincial component of the tax. The primary benefit of harmonizing the PST with the GST is that it would effectively “exempt” almost all inputs from sales tax thereby alleviating the PST burden on most businesses with operations in Ontario. The current common PST “exemptions,” such as goods purchased for resale, will be extended to most inputs as the OVAT will be a creditable tax to many businesses. Similar to the GST, the credit would include purchases for desks, computers, office supplies, etc., which were taxable but not creditable under the PST regime. The result of this 8.0% PST savings to the business community is estimated to be significant and some of the cost savings are expected to be passed through to consumers.
OVAT For Charities and Non-Profits
Certain purchases or sales by religious, charitable and benevolent organizations are currently not subject to PST. Under the new OVAT system, public service bodies in Ontario that are normally eligible to claim GST rebates for tax paid, which includes charities and non-profit organizations, will be made “whole” as they will also be able to claim rebates for the provincial portion of the OVAT. Charities and qualifying nonprofits are expected to be able to claim a rebate of 82% of tax paid in respect of the provincial portion of the OVAT.