As of July 1, there's a new tax in town if you live, work or travel in Ontario and British Columbia. And while the new federally administrated Harmonized Sales Tax, which combines and replaces the provincial and goods-and-services taxes, doesn't actually raise the tax rate for most products and services, there is one sector that is being noticeably hit: the tourism industry, which used to be subject only to the GST in most cases.
While the government is touting the new HST as a good thing for businesses — they will now be able to get back more of the taxes they have traditionally paid for goods and services instead of invisibly passing those charges onto consumers — it also means a highly visible new tax for tourism customers.
"It's a fear — and a well-grounded fear — that consumers who are looking at an extra cost might move to another mode of travel or not travel at all," says Brian Crow, president of Motor Coach Canada. "It's a disincentive to take a motor-coach tour."
The HST is an attempt to create something akin the the value-added taxes that many other countries and some other provinces use. The government says it will promote investment, jobs and higher wages. In recognition that the HST is a regressive tax — it tends to hit poorer families and small businesses more harshly — the provincial governments have put in place various instant rebates, credits and givebacks.
The Ontario HST is 13% as of July 1. The semi-good news is that there are no new taxes for 83 percent of goods and services. The bad news is that a significant portion of the other 17% affects tourism. Hotel rooms will be taxed at the full HST rather than a previous 10% combined tax. Domestic bus travel originating in Ontario will be taxed at the HST rate rather than the previous 5% GST, as will greens fees, most live-theatre tickets and hall rentals. On the other hand, there will be tax savings on movie tickets and professional sporting event admissions.
So far, the tax is proving unpopular. In a position paper on the subject, the Ontario Accommodation Association called the HST a "$100 million cash grab from tourists."
The BC HST stands at 12% as of July 1. The good news: hotel taxes have dropped a percentage point to 7% (additional local taxes may still apply), and alcoholic beverages will be taxed at 12% instead of 15%. Those traveling by bus (or cruise ship or rail) to international destinations including the U.S. will pay the same amount of tax as before. Private provincial bus transportation will have to be taxed at the 12% rate instead of the previous 5%. Snack foods, restaurant meals, event admissions, parking, ski-lift tickets, museum tickets, hall rentals and event planning will see a similar rise in taxation.
The government estimates that BC tourism is worth $13.8 billion, and that transportation-sector businesses will save about $210 million because of tax credits and reduced paperwork. On the other hand, some organizations have come out and estimated that the tax will hurt their businesses. The Wilderness Tourism Association of BC predicts that the industry will lose $50 million in revenue, and other associations have taken a dim view as well. The Canadian Restaurant and Foodservices Association has predicted the HST will cost its industry in B.C. $750 million a year. It's not proving popular with consumers, either. The Vancouver Sun posted a poll in late 2009 that showed 85% of residents opposed the HST.
New Brunswick, Nova Scotia, and Newfoundland and Labrador already have HST systems in place; Nova Scotia's rose to 15% on July 1. The Yukon, Northwest Territories and Nunavut do not have HST or territorial sales taxes. Alberta (which charges no PST), Saskatchewan, Manitoba, Quebec (which charges the HST-like QST) and Prince Edward Island continue their present tax systems, though Quebec's rate is slated to rise starting in 2011.
Crow points out that the new HST does not apply to public transit, putting some private line-haul carriers and routes at a further disadvantage. He also says that there are still more questions than answers when it comes to many of the details. It can be difficult to figure out how to calculate taxes for multi-province trips. And there are surprising exceptions to the HST rules. For instance, a coach that starts a trip in Ontario and then spends a full 24 hours across the U.S. border before completing its journey in the provinces does not have to charge any HST on the transportation portion of the trip.
Those in the market for a new coach may at least see some savings — customers will now be able to deduct the full HST they pay on the purchase price as an input credit. The same goes for parts purchases. And with coaches being high-ticket items, that could potentially offset lost revenues.
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