Tax Memo: Sales Tax Harmonization – Financial Services (Updated August 4, 2010)
After 18 years of maintaining a provincial retail sales tax alongside the federal Goods and Services Tax (GST), BC and Ontario made a bold move to harmonize their respective provincial sales taxes with the GST effective July 1, 2010. The resulting Harmonized Sales Tax (HST) applied at a rate of 12% in BC and 13% in Ontario.
This decision will be applauded by most economists as a step toward improving the productivity and competitiveness of the economy in British Columbia and Ontario. With regard to the financial services sector, however, because supplies of financial services are exempt from GST/HST, financial institutions have limited scope to claim input tax credits on their purchases. The HST base is significantly broader than that for the previous provincial sales tax base, so harmonization substantially increases the tax burden for the financial sector.
Notwithstanding that supplies of financial services are exempt from HST, Ontario will continue to impose an 8% sales tax on insurance premiums.
Read this Tax Memo for more details.
