Supplemental comments on implementation of Ontario's harmonized sales tax.

• Author: Spagnuolo, Diana M.

September 8, 2009

On September 8, 2009, TEI filed supplemental comments on issues relating to the implementation of a harmonized sales tax in the Province of Ontario. The letter was prepared under the auspices of TEI's Canadian Commodity Tax Committee and the Toronto Chapter's Ontario Tax Committee, whose chairs are Diana M. Spagnuolo Imperial Oil Limited and Carol Nixon of Lanxess Inc., respectively. Materially participating in drafting the supplemental letter were Vincent Alicandri of Hydro One Networks, Inc; Carol Felepchuk of TD Bank Financial Group; Larry R. Querin of Reveralnc.; D. Paul Revell of Rexel Canada Electrical Inc.; Richard Taylor of Rogers Communications Inc.; and Michael J. Willis of LaFarge Canada Inc. Mary Lou Fahey, TEI's General Counsel, served as legal staff liaison on this project. A meeting with Ontario's Ministry of Finance is scheduled for October 16.

This letter supplements TEI's August 24, 2009, comments on implementation issues relating to the adoption of a harmonized Ontario value-added tax (OVAT), addressing issues relating to financial institutions, residential care facilities, and tax-included pricing. We appreciate the Ministry's willingness to consider the Institute's views and look forward to our meeting on October 16.

Financial Institutions

1. Special Attribution Method (SAM). (1) The current SAM formula uses the provincial allocation set forth in the Income Tax Regulations as a proxy for determining the percentage of federal goods and services tax (GST) that relates to the harmonized province and on which the related adjustment to net tax for harmonized sales tax (HST) purposes is based. The income tax allocation, however, may not accurately reflect consumption, and thus it may be useful to develop alternatives that more closely reflect consumption in the province. For example, the provincial income tax allocation for banks is based on a combination of 1/3 salaries and wages and 2/3 loans and deposits. An alternative that could more closely approximate consumption could be based on other factors, e.g., headcount and the number of customer accounts by province.

   Currently, the SAM formula allows an adjustment to net tax under ETA section 225.2 ("HST liability") to be reduced only by the provincial component of HST paid or payable in the current fiscal year. Thus, where the HST is not identified in the financial records in the year in which it is incurred, it may be inadvertently excluded from the HST paid...