HST: It's just around the corner

The harmonized sales tax is almost upon us, and how it will affect individuals is still a question of much heated debate.

Last week two studies came out, both based on Statistics Canada data. Yet the results were quite different. Victoria's Times Colonist predicted the average family would spend $521 more on tax in a year, while the Fraser Institute found that while families would spend more on the sales tax, the offsetting tax rebates for lower income families and the increase in the basic personal exemption for all taxpayers in the province, means many families will be better off.

Whichever is correct, if either, will be determined only in hindsight.

But one thing is certain: The tax will affect different consumers differently.

"This is a consumption tax," said David Robertson, a tax partner with the law firm of Fasken Martineau DuMoulin LLP. "And so you can look at all the surveys but it really depends on what you're doing."

If you spend a lot, you'll pay more tax. If you are a saver, you won't, he said.

It also depends where you spend your money.

Most items -80 per cent -will be taxed at the same level as they are now because they were subject to both the provincial sales tax of seven per cent and the goods and services tax of five per cent, which are being combined to form the 12 per cent HST.

And some of the newly taxed items, like marketing services, fire extinguishers, and accountants, aren't a big part of the budgets of individual consumers, Robertson pointed out.

Robertson likes the HST because it taxes spending not earnings, like income tax does. When earnings are taxed, it takes away some of the decision-making because you have no choice how that money is being spent. However, with a consumption tax you can decide to spend less.

"I always say 'don't tax me when I earn my money, tax me when I spend my money,'" Robertson said.

And the problem with the PST is that it is applied inconsistently. It started as a tax on real assets but then was expanded to some services and other items, Robertson said. So it turned into a hodgepodge that didn't make sense.

For example, why do lawyers have to charge PST but accountants don't, he asked. Or why does someone fixing your car have to charge tax, but not someone fixing up your house?

But there is no doubt that some people will pay more tax, depending on how they spend their money. However the change isn't "the major tax increase," that some people are suggesting, said Niels Veldhuis, senior economist with the Fraser Institute.

Both Veldhuis and Robertson say there has been a lot of misinformation about how taxes will increase, including statements suggesting it will add seven per cent to rent (not true), and seven per cent to phone bills (only a portion of the phone bill will have the new tax, the rest is already subject to the full tax).

But some items will be taxed more. As well, some prices will be affected, but that works both ways, Veldhuis said.

Companies who can't deduct the HST they pay on their expenses may pass those added costs on to consumers. But most companies will get back the tax they pay, and pass that on through lower prices.

A study carried out in the Atlantic provinces after the HST was introduced there found that companies did lower prices, Veldhuis said. So the tax rate may be higher, but it's paid on lower prices, he said.

But given the amount of tax people already pay, it's no surprise the move to the HST has become such an emotional issue, Veldhuis said.

"When you think about the average family [with] two income earners both with modest to middle incomes, the family income is $85,000 and they're sending $37,000 of that to the government and then they hear this is a massive tax increase, it's no wonder people are emotional," he said.

Regardless of whether you like the tax or not, there is one thing many people can look forward to: the first HST rebate cheque will be coming soon and it will be noticeably higher than the GST rebate cheques it's replacing.

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WHAT'S AFFECTED

To help British Columbians figure out how their daily lives will change with the HST, here are some common expenses listed by whether the tax treatment will change or not:

AT HOME

No change

- Rent or mortgage payments

- Specialty cable or satellite TV

- Cellphone

Work

No change

- Transit

- Gas for car

After Work

No change

- Cocktails/beer/wine

- Books

7-per-cent higher

- Basic cable

- Basic local home phone

- Ready-to-eat food, and bad-for-you food like chips and pop

7-per-cent higher

- Parking

- Takeout food

7-per-cent higher

- Movies/theatre, hockey tickets

- Food in restaurant

(prepared by Fiona Anderson/Vancouver Sun)