Finance Committee on Dec. 8th, 2009

[John McCallum, Liberal, Markham—Unionville, ON]

I'm assuming it would be primarily Ontario that would lose revenue. So if we voted for such an amendment in federal Parliament, we would be voting essentially for Ontario to have less revenue.

[Louise Levonian]

The way the Comprehensive Integrated Tax Coordination Agreement—this is the agreement between Canada and Ontario—works is that Ontario or B.C. or any province that enters into this Comprehensive Integrated Tax Coordination Agreement has to agree on any point-of-sale rebates that are provided. The province will choose what point-of-sale rebates are. If we think data exists and it is administrable, then the province absolutely has the choice about making that point-of-sale exemption. Because the federal government is administering the point-of-sale exemption, it has to be administrable.

[John McCallum, Liberal, Markham—Unionville, ON]

What if Ontario wanted to grant the aboriginal people the exemption they're asking for? Would the federal government agree?

[Louise Levonian]

As I said, that would be something for ministers to decide, and there would be considerations involved in that. There are policy issues to expanding section 87, and there would be issues with data as well.

[John McCallum, Liberal, Markham—Unionville, ON]

Okay. So does this mean discussions are ongoing between the provincial Government of Ontario and the federal government, at least at the officials' level, on this matter?

[Louise Levonian]

I can't really comment on that specifically. Those are internal discussions.

Ontario would have the capacity to do what it would want to do outside the HST system as well. There are no limits on the province doing that.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McCallum.

I'll go to Mr. Pacetti, and then Monsieur Laforest.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

My question is sort of along the same lines as Mr. McCallum's question.

My understanding is that the GST does not allow for any exemptions except for whatever is in the law. Once the provinces have signed on to the HST, would they have any flexibility in saying they weren't going to tax microphones, for example? Do they have that flexibility or do they have to run along the same lines as the GST?

[Louise Levonian]

No, Mr. Chair, they definitely have the flexibility to choose point-of-sale exemptions for themselves. Ontario has chosen children's clothing, children's shoes, feminine hygiene products, and many other items for exemption.

The only caveat I would add is that obviously, since the federal government is administering the entire HST, we have to be able to administer it. So if they were to choose red shoes as a point-of-sale exemption and we couldn't identify how many red shoes were sold, then we wouldn't be able to administer it. The provinces have complete authority to decide which point-of-sale exemptions there are, but we have to be able to administer it.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So then the province would collect the GST on children's clothes, but not the HST portion? Is that correct?

[Louise Levonian]

For the amount that would be charged, say on children's clothing--because the GST is applied on children's clothing, but in Ontario it won't be applied on children's clothing--at the point of sale, the GST would apply. But the provincial portion of the HST would not apply. And we have to be able to quantify that so that we can subtract it from the amount we would transfer to Ontario.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

How has that become more efficient administratively for the person or the company selling children's clothing?

[Louise Levonian]

The broad efficiencies arise from the fact that there is one law for businesses to look at now. The rate would be 13% in Ontario and 12% in B.C. There is only one administrator. The businesses have to deal only with the Canada Revenue Agency.

Also, we have this revenue allocation formula. I was saying that we divide up the revenues based on an amount of money that's submitted. That is submitted based on 13% or 12%. The amounts of provincial or federal revenues that are collected do not have to be tracked. They all go into a pool so it makes it much simpler for business to administer.

[Brian Ernewein]

If I may just add to the point, to answer your question directly, there isn't a tracking system under the HST that requires merchants to identify how much was sold in children's clothing that qualifies for exemption. They simply send in their total HST collections. Through the input and output tables Stats Canada collects--if they have a category for children's clothing--they can identify the amount sold among the HST provinces. The allocation formula simply takes that into account and slices off a portion, for example, for Ontario in relation to that. It's not merchant-based or individually tracked. It's done overall with the aggregate data.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So with the HST you can exempt certain things at points of sale, but in Quebec it's pretty consistent, from what I recall. Everything that is GST-able is QST-able, except there is a certain input of tax credits that you cannot claim for the QST system.

Will Ontario have the same ability to prevent companies from claiming certain HST exemptions?

[Louise Levonian]

One point I forgot to make in my last response was that point-of-sale exemptions are limited to 5%, so I should just say they can only go up to 5% of their base.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

That's 5% of...?

[Louise Levonian]

It's 5% of the GST or HST base.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay.

[Louise Levonian]

To answer your question, Ontario is allowed input tax credit denials similar to what Quebec has under its system, but temporarily. It's allowed fully for a period of five years, and then it's ratcheted down. As far as the base goes relative to the GST and the QST, the main differences are that the financial institutions are not the same, although there are smaller differences as well; they have the ITC denials on an ongoing basis, and the QST applies on top of the GST, which isn't part of the GST base.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Okay, great. Thank you.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Laforest.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Thank you, Mr. Chairman.

Ms. Levonian, I just want to be sure I understand. With respect to the amendment the chiefs have suggested, you stated a little earlier that no such amendment is needed because, in your opinion, the provincial legislatures can reach agreements.

Is that what you said?

[Louise Levonian]

The provinces are able to provide compensation outside the GST system.