HST: Hst On Renovations Hits May 1

With all the billboards springing up around the city, it's hard to miss the 13% harmonized sales tax (HST) slated to become law July 1.

For many, the tax is just a convenient combination of 8% provincial sales tax (PST) and 5% goods and services tax (GST).

But for the home renovation industry, which contributes $20-billion and 195,000 jobs to Ontario's economy, the HST may have some hidden challenges.

Figuring homeowners will rush to get projects in under the deadline and avoid the tax, the government has also added a May 1 deadline clause. Essentially, any project ordered by May 1, but not completed by July 1, is subject to the whole 13% tax.

But if the work is completed before July 1 it will be taxed at the current 5% GST.

The clause was added because the "government doesn't want a rush of renovations ordered on June 30, allowing homeowners to escape paying the HST," explains Brian Wurts, an analyst at Price Waterhouse Coopers. "The government doesn't want to lose all that money."

It's a clause mainly for contractors who pre-bill, he adds, and putting the window far enough before the HST's real launch date will prevent them evading the tax.

The tax will also add almost 8% to a renovation bill. Currently, homeowners pay only 5% GST for services, which includes labour. PST on the bill--covering the materials -- is hidden within the GST total. But with the HST, labour and overhead will be subject to tax, bumping the overall invoice tax to 13%.

Imagine you order a deck built, and the job comes out at $10,000. Your contractor pays $1,000 for materials. Pre-HST, your total is $10,500 (cost plus GST), while your contractor pays $1,130 (adding $50 GST and $80 PST to his $1,000 materials bill). The building materials cost is rolled into your project costs. After the HST, though, your total is $11,300 (13% HST), your contractor pays $1,130 for materials, but gets reimbursed for the $130 from the government. The contractor may then reduce your bill by that $130. In the end, you still end up paying more, though not the full 8% face value of the HST.

Some fear the new HST will drive contractors underground as more and more customers try to avoid paying more tax. That's what happened after the GST was introduced in 1991. And even though homeowners are accustomed to that tax by now, projects done under the table still account for about 37% of the province's home renovation business, according to the Ontario Renovators Council.

Others think the tax will ultimately reduce the number of nefarious contractors, who won't be able to claim the tax they pay when they buy building materials for a client's project. The costs will have to be passed on to the customers, ultimately negating much of the apparent discount in the under-the-table bill, potentially making those contractors less desirable.

One employment-generating effect of the tax, Mr. Wurts thinks, is the amount of renovation likely to start before summer hits: "That new roof will cost 8% more as of July 1, so if people have projects they want done, they'll be planning to have it done before."

For more information on the HST, visit www.rev.gov.on.ca/en/taxchange/index.htmlor call 1-800-337-7222.

(prepared by Alex Newman/National Post)