GST/PST Alert – is there a tax grab underway?

Media reports are suggesting that under the guise of harmonizing the GST with the provincial sales taxes [PST], Ontario will slip in a tax grab. The Investment Funds Institute of Canada (IFIC), an investment industry group is warning that this could mean that people buying mutual funds would have to pay the Ontario 8-per-cent provincial sales tax along with the 5-per-cent federal GST they already pay now. The IFIC is urging Ontario to exclude mutual funds from the additional provincial tax if the province decides to go ahead with a combined tax rate.

There are estimates that this could net Ontario $500 million in PST if it is imposed on all financial services currently exempt from PST. Oh and by the way, the provincial tax grab could also extend to low cost meals and heating fuel.

With people already watching their retirement savings evaporate, taxing their last few dollars would seem to be too churlish to be politically wise. So why is Ontario Premier McGuinty said to be musing about it at all?

First, the Ontario Chamber of Commerce fully supports harmonization and speaks nobly in its recently released Reportof the need to address Canada’s serious economic challenges. But buried in the Report, the real premise of their report is that harmonization means that manufacturing and construction costs which now bear PST would be come exempt.

So, to replace those lost tax dollars, other products and services could now be taxed. To smooth the way, the Report suggests exemptions for “clean fuel” – too bad if your home is heated by dirty oil. Another suggested option is to exempt ‘financial services’, neatly avoiding mentioning that mutual funds are not defined as financial services. We do not have any official pronouncements yet so it is unclear whether there is any net gain for Ontario from removing PST from the manufacturing sector and placing it on the retail and financial services sector. Simply exempting those sectors would make the already announced $18 Billion provincial deficit even worse.

It still doesn’t make any political sense– why would McGuinty bear the political burden of enraging thousands of individuals with a new tax on their most basic needs and now meagre savings for little net tax revenue gain? Word is that pressure for harmonization is actually coming from the federal government. No mention yet that GST would be imposed on new categories of products and services – they really don’t need another reason to loosen their tenuous hold on a minority government. Even more curious are the rumours that there could be serious federal transfer payments in it for the province.

Surely the reason cannot be the one suggested by the reaction of Toronto-based CI Financial Corp., described in the Globe and Mail article: “CI will consider moving some of its operations out of Ontario – maybe to Alberta, which does not have a combined tax rate – if the province goes ahead with harmonization”.

Whatever the reason, and whether or not this is just speculation and fear mongering, this is the time to make your views known – no accusations , just a clear statement that you do not want new provincial sales taxes on your mutual funds, home heating fuel or low cost meals. Or if you want to pay new taxes to help with the provincial deficit, you can say that too!