At its last board of directors meeting COCA's directors debated and approved support for the government's package of proposed tax reforms that would lead to the harmonizing of the provincial retail sales tax with the federal goods and services tax. In supporting the new tax, COCA is adding its name to a long list of business and trade associations which have already provided their endorsement.  

Both the Ontario Legislative Assembly and the House of Commons easily passed enabling legislation Wednesday December 9^th making a reality the creation of the Ontario Harmonized Sales Tax (HST) come July, 2010.

The new 13% percent tax will add an additional 8% to the cost of approximately 1 in 5 purchases including home energy costs, gasoline, legal fees, hair cuts, gym memberships, funerals and tobacco products to name but a few.

Offsetting costs to consumers are personal tax cuts, included as part of the overall provincial tax package, set to take effect January 1, 2010 now that the legislation has passed the legislative assembly.  Taxpayers can also look forward to a series of personal subsidies in the form of provincial government cheques over the coming year, made possible by the $4.3 billion in assistance Ottawa will be sending to Queen's Park to help with the costs of establishing the new regime. 

Of course, the big winners with the creation of the HST are the business community.  Calculations have estimated that embedded or hidden taxes in the current tax system account for as much as 11 to 12 % of the total cost of doing business in Ontario.  The simplified HST system is projected to net the province $500 million in administrative savings in addition to significantly lower marginally effective tax rates for the Ontario economy.  Noted economist and public policy expert, Prof. Jack Mintz of the Calgary School of Public Policy estimates that the proposed tax measures over the next 10 years will net the province 519,000 new jobs; increase capital investment $47 billion; and, increase the annual incomes of workers between 4.4% and 8.8% - a value of as much as $29.4 billion.

Given it is currently one of the least competitive sectors of the provincial economy bigger still are the projected benefits for the Ontario construction industry.  Of the $4.5 billion in tax credits and reductions available under the new HST regime, approximately $2.375 billion are to apply to construction.  These savings are to be realized primarily through input tax credits and through corporate tax cuts and capital tax eliminations.  For medium and large construction businesses, the marginal effective tax rate on capital investment for the construction sector will decrease from its 2009 level of 42.2% to 20.9% in 2018, a decrease of 21.3 points or 50.5%.  Even more immediate and significant will be the benefit to small business.  The marginal effective tax rate for small business on capital investment in the construction sector will decline from 43.8% in 2009 to 15.5% in 2010, a decrease of 28.3 points or 64.6%.

The government still has some work to do to clearly define the specific details of the transition rules as they apply to the construction industry in order to allow firms to anticipate their project costs.  More information will be forthcoming as it becomes available.  In the interim, any questions concerning the HST, the impact to the construction industry or businesses specifically can be directed to David Zurawel at 416-968-7200 ext. 223 / dzurawel@coca.on.ca.