On July 1, 2010, the harmonized sales tax (HST) came into effect in Ontario and British Columbia (B.C.). The HST, which is administratively similar to the federal goods and services tax (GST), replaced the GST and provincial sales taxes (PST) in those provinces. For supplies made in Ontario, the HST rate is 13% (equivalent to 8% Ontario PST + 5% GST) and for supplies made in BC, the HST rate is 12% (equivalent to 7% BC PST + 5% GST). Effective July 1, 2010, the HST rate in Nova Scotia increased from 13% to 15%. HST rates in New Brunswick and Newfoundland remain at 13%.

The HST will generally apply in Ontario and B.C. in the same manner and on the same purchases as the GST currently does, with the following specific exceptions:

  • in Ontario, point-of-sale rebates for the provincial component of the HST are available for qualifying books, newspapers, meals under $4, certain hygiene products, and children’s goods; and  
  • in BC, point-of-sale rebates for the provincial component of the HST are available for qualifying motor fuels, books, certain hygiene products and children’s goods.

On May 31, 2010, the Federal Government introduced regulations that describe the new place of supply rules for the HST, which in many cases represent a significant departure from the previous rules. Generally, those rules now specify that, subject to certain restrictions:

  • a supply of tangible personal property or real property is generally considered to be made in the province in which the property is, respectively, delivered or situated;
  • the supply of a service in respect of tangible personal property or real property will generally be considered to be made in the province in which the property is located;
  • the supply of other services is generally considered to be made in a particular province if the recipient’s home or business address is located in that province or, if the supplier has not been provided with one such address for a particular recipient and the address of the recipient most closely connected with the supply is located in that province; and
  • the supply of intangible personal property (that may be used primarily inside or primarily outside HST-provinces) is generally considered to be made in a particular province if the property can be used in that province and the recipient’s home or business address is located in that province or, if the supplier has not been provided with one such unique address for a particular recipient, and the address of the recipient most closely connected with the supply is located in that province.

The methods by which franchisors claim input tax credits (ITC) and file GST/HST returns have not changed. Therefore, for many businesses, the switch from PST to HST will present no burden and, due to the increased availability of ITCs in respect of HST (vis-à-vis non-creditable PST), this will generally be of a net benefit. In addition, administrative and compliance costs may now be reduced since businesses are no longer required to administer as many different taxes.

Generally, the Ontario and B.C. PST ceased to be effective as of July 1, 2010 (although Ontario PST continues to be exigible on various forms of insurance).