Editor’s Letter: October 2009
By Brian Hartz
“Harmonized” taxes, that is, as Ontario and British Columbia look set
to join the Maritimes in combining the federal goods and services tax
(GST) and provincial (or retail) sales tax (PST/RST). The change will
take effect on July 1, 2010, in both provinces.
Time to dust off that old chestnut about life’s only certainties: death and taxes.
“Harmonized” taxes, that is, as Ontario and British Columbia look set to join the Maritimes in combining the federal goods and services tax (GST) and provincial (or retail) sales tax (PST/RST). The change will take effect on July 1, 2010, in both provinces.
What does harmonized sales tax (HST) mean for bakeries? That’s a good question. It certainly has been greeted with boos by restaurateurs; in fact, a recent survey by the Canadian Restaurant and Foodservices Association (CRFA) indicated that a “vast majority of restaurant owners – 91 per cent – say a harmonized sales tax in British Columbia will have a negative impact on their business.”
The CRFA has 4,000 member businesses in B.C., and with the advent of HST they’ll see taxes on meals they serve rise from 5 to 12 per cent.
“The survey results echo what we’ve been hearing loud and clear in e-mails, phone calls and faxes from our members,” says CRFA Western Canada vice-president Mark von Schellwitz. “Adding a 7 per cent PST onto the 5 per cent GST will more than double the sales tax on restaurant meals. This will result in a dramatic decrease in consumer spending on eating out.”
I’d wager that a survey on HST conducted among bakery owners and operators would net similar results (as of Sept. 9, our unscientific poll at BakersJournal.com had HST opposition at 80 per cent, HST support at 4 per cent, and “uncertain” at 16 per cent), even though it’s unclear as to what baked goods would be subject to HST and whether Ontario and B.C. bakeries’ tax exemptions will continue.
According to the Canada Revenue Agency, products such as breads, bagels, tortillas, English muffins, croissants and unfilled rolls are part of the basic grocery category that has traditionally been “zero-rated.” This means GST/HST is applied at a rate of 0 per cent; however, a GST/HST registrant can claim an input tax credit for the GST/HST paid or owed on expenses made to provide zero-rated sales or supplies.
In Ontario, a bakery that sells beverages is considered an “eating establishment” and must charge RST, in addition to GST, on the sale of five or fewer pastries, with or without beverages, if the total cost is more than $4. But customers who buy more than five pastries, with or without beverages, are not required to pay RST on the baked goods. B.C.’s PST policy is more straightforward: All food products for human consumption are exempt.
The Baking Association of Canada does not know, at this point, exactly what products HST will affect, or if the RST/PST exemptions above will continue under the proposed HST. If it doesn’t, bakery customers will be slapped with an additional 8 per cent (7 per cent in B.C.) of tax. And even worse, bakeries will be missing out on extra tax credits for one of their biggest expenses – labour – because it doesn’t apply.
The BAC says the government has been slow in providing the appropriate information, and if that’s the case, the imposition of HST next July is simply unacceptable. Likewise, when queried by Bakers Journal the CRFA did not have any data on the topic.
We are less than a year away from this major change to the economies of Ontario and B.C., and officials are dragging their feet on providing the most basic tax policy explanations to people who will be affected, if not downright hurt, by what’s being touted as a way to streamline the cost of doing business but is looking more and more like another government cash grab at the expense of retail bakeries, whose customers will flee for the food industry’s new tax shelter – the grocery store.