TEI weighs in on harmonization issues: Ontario transitional issues primary focus of comments.

• Position: Tax Executives Institute

Responding to an invitation from Ontario's Ministry of Finance, TEI filed comments on transitional and technical issues relating to the harmonization of Ontario's retail sales tax with the federal goods and services tax (GST). Earlier this year, the Government of Canada and the Province of Ontario announced their intent to harmonize these two taxes effective July 1, 2010. The Institute also contacted the members of Ontario's Legislative Assembly, urging them to support the legislation.

TEI's first submission focused primarily on transitional issues. In an August 24 letter from TEI President Traubenberg to Ontario Assistant Deputy Finance Minister Steve Orsini, the Institute commended the province for working to simplify the administration of the taxes. Noting that the proposed legislation would restrict input tax credits (ITCs) for five years for certain large corporations--including telecommunication services (other than Internet access or toll-free numbers), certain road vehicles, fuel, and energy--the Institute recommended that "the Province follow the model of the Maritime Provinces, which did not place temporary restrictions on large corporations for claiming ITCs." By failing to provide unrestricted ITCs for all supplies to businesses, the Institute argued, "the harmonization is incomplete and economically inefficient."

Restricted ITCs

Turning to the technical aspects of the proposal, the Institute described Quebec's experience in harmonizing its sales tax with the federal GST in the early 1990s. In respect of telecommunications services, TEI said, the legislation should restrict large businesses from recovering only the provincial portion of the sales tax charged to them by other registrants on supplies of telephone and other services of transmitting and receiving telecommunications (e.g., the right to send or receive messages over a private or dedicated line service), other than Internet access or toll-free telecommunication services.

The Institute recommended that the term "energy" be clearly defined. Describing the ways in which gas and electricity are sold for end-use consumption, the organization recommended that "energy" subject to ITC restrictions be limited to the price for the commodity (i.e., ancillary charges for services such as transmission and distribution should not be subject to the ITC restriction).

"Clear guidelines on how to establish or calculate the portion of energy used in production activities must [also] be...