Don’t let HST bite into your home reno budget

June 10, 2010

On July 1, the new harmonized sales tax will come into existence. In the case of installed home improvements particularly, consumers must be aware, that unless they are diligent, the new system may result in a tax burden for them, that they should not bear, and a tax benefit for installers, that they should not have.

The government extols the benefit of the new system as being that most businesses will be able to recover the provincial sales tax that they pay, and that they currently absorb, as part of their cost of doing business.

It is this critical element of the HST that is not being fully explained by the government to consumers, and it would also appear, to many businesses.

We are being inundated with advertisements that are encouraging us to make our purchases of many items before July 1 so that we will save the additional eight per cent that is being claimed we will pay on July 1. This advertising is most significant with businesses engaged in the sale of installed home renovation items such as kitchens, bathrooms, and flooring.

The current provincial sales tax system provides that we as consumers do not pay provincial sales tax on items that become “attached” to our homes when they are supplied to us by manufacturer-installers, such as new kitchen cabinets, bathroom fixtures, and flooring. The reason for this is that there is currently no provincial sales tax on real property, and once these items are attached to our homes, they are considered real property.

The manufacturer-installers of these kitchen cabinets, bathroom fixtures, and flooring are, however, currently paying provincial sales tax on these items, and passing the cost of this provincial sales tax on to us as consumers in the form of the price we pay for these items. Although, there is currently no provincial sales tax shown on the invoice we receive from these manufacturer-installers, provincial sales tax is “embedded” in the price we pay.

In the new HST system, the manufacturer-installer of these household improvement items will receive a credit from the government for the provincial sales tax they pay on what they buy to make these items, and as such, their cost of what they sell us will have gone down by this tax that they formerly absorbed.

Consumers should, therefore, be aware that they should not simply accept a claim from a manufacturer installer that the price for installed kitchen cabinets, bathroom fixtures, and flooring will go up by eight per cent on July 1 because of the HST.

Consumers should find out how much the merchant will be receiving as a credit from the government on these installed items they are buying, before agreeing to pay any increased price after July 1 as a result of the introduction of the HST.

MARK SIEGEL, Ottawa

Mark Siegel is a partner in Gowlings' Ottawa office, practising in all areas of taxation and wealth management, and has extensive involvement with community foundations and charitable organizations