Tax Harmonization Is Not Music to the Ears
Adam Aptowitzer, July 09, 2009
The Ontario attempt to harmonize its provincial sales tax regime with the federal GST has the charity sector struggling to understand the impact these sweeping changes will have on the various types of charities within the sector. Because the Excise Tax Act (the law which applies the GST and HST) creates different categories of what the Income Tax Act generally calls registered charities, this analysis will likely take some time and differ depending on the nature and activity of the charity. However, some preliminary observations make it clear that the move to a single harmonized tax will have some serious negative effects on charities.
For goods and services which were not subject to PST under the old regime (for example legal and accounting services) the new regime effectively increases costs for these services to registered charities by 1.6% after taking the 82% rebate available to certain charities into account. Considering that these are expenses which do not fall into the disbursement quota but rather are considered administrative expenses, the charity now has a reduced disbursement quota to spend on its other administrative activities. Taking an extreme example, if none of the charity’s non-charitable activities were subject to Ontario PST before harmonization, in the new era the charity the amount the charity can now spend on non-charitable activity is reduced from 20% to 18.4%.
When considered in light of the fact that many charities are going to require professional assistance simply to comply with the new law it very well may be that charities are going to be forced to fall short of the disbursement quota simply to meet their obligations in understanding the transition to the HST regime.