Report to: General Committee Report Date: September 13, 2010
SUBJECT: Harmonized Sales Tax (HST) - Update
PREPARED BY: Kishor Soneji, Senior Accountant
RECOMMENDATION:
- That the report “Harmonized Sales Tax (HST) - Update ” be received;
- And That
Staff be authorized and directed to do all things necessary to give effect
to this resolution.
PURPOSE:
The purpose of this report is
to provide an update on the HST rules with regard to availing of input tax
credit on major capital projects.
BACKGROUND:
The 2009 Ontario Budget
announced that effective July 1, 2010, Provincial Sales Tax (PST) would be
harmonized with Goods and Services Tax (GST) to create a federally administered
Harmonized Sales Tax (HST) of 13%. The provincial and federal portions will continue
to be 8% and 5% respectively.
The 2009 Ontario Budget
confirmed that municipalities will be entitled to a 78% rebate on the PST
component of HST and the current federal GST rebate of 100% for municipalities
will remain unchanged.
Staff informed Council in
October 2009 that the estimated 2010 impact of HST on the Operating Budget and
Capital Budget impact to the Town will be $55,000 and $545,000 respectively.
These amounts have been included in the respective 2010 budgets.
OPTIONS/ DISCUSSION:
Prior to July 1, 2010, the Town was eligible to claim
100% of GST on all capital projects by way of rebate/input tax credit as per
the Canada Revenue Agency (CRA) rules for municipalities. Staff have discussed
the possibility of claiming rebate/input tax credit post July 1, 2010 and have
received confirmation from our external auditors KPMG and CRA that the Town can
claim the input tax credit in full (i.e. 100% HST) where the property is acquired
primarily (50% or more) for use in a commercial activity or when the property
is being used primarily in a commercial activity immediately after an
improvement. If the capital projects do not meet the above criteria of 50% or
more, the Town will continue to claim 78% rebate on such projects and absorb
the 22% PST component (i.e.1.76% of 13% HST) in the project cost.
The report to Council awarding the construction
contract for East Markham Community Centre and Library (EMCC&L) in June
2010 included $1.03 million towards HST. Based on the above confirmation the
Town will now be able to claim 100% of HST paid on the construction cost of the
EMCC&L project that will result in a reduction of $1.03 million to the
total cost of the project. Therefore this amount can be removed from the budget
and returned to the original funding source.
Staff have also identified other major capital
projects that meet the criteria for claiming 100% input tax credits (Appendix - A). These projects did not include an incremental
amount for HST and therefore there will be no budget impact as a result of the
input tax credit.
FINANCIAL CONSIDERATIONS:
The
reduction in the total cost of the projects on account of 100% claim of input
tax credit will be returned to original funding source.
RECOMMENDED
BY:
Appendix - A
