Why BC Provincial Income Tax Rate Cut to Can’t Save HST
On October 29, 2010 BC Premier Gordon Campbell in a Television Advertisement announced 15% Provincial Income Tax Rate cut on an income up to $72,000, starting January 1, 2011.
Underlying assumption is this income tax rate cut will give people more money in hand to cover the cost of HST.
How much money people will be saving?
“Immediate savings of $354 for people making $50,000/year and up to $616 for those making $72,293 or more.”
Let’s do the math here. If you are making $50,000 this tax cut will save you 0.7% of your income and if you are making $72,293 you will be saving 0.85% of your income. As far as I am concerned, this tax savings is insignificant. People making over $50,000 do not care about saving 354/year.
People who would benefit from this will still pay 100% of HST. Over 80% of BC residents make less than $30,000 per year. How much savings are they going to get with this income tax rate cut? Is this tax savings going to cover the HST impact on their expenses?
Bottom line, HST is good for business and the province and Income Tax Rate Cut is a welcome relief. But HST is still going to hurt consumers. Now its time for businesses to stand up and announce the savings they are transferring to consumers.
Home Buyers Are Ignorant about HST in British Columbia and Ontario
I wrote about this myths about HST is causing a havoc in real estate market where HST was introduced in July 2009.
Home buyers are ignorant about HST and also real estate experts have failed to send the message about the net effect of HST to the prospective home buyers.
A recent study confirms my conclusion about HST and Real Estate market.
BC Province HST Real Estate: HST investment Property Tax Real Estate Tax
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Myths about HST and Vancouver Real Estate Market
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Ignorance about HST is causing a chaos on Vancouver real estate market. Every prospective home buyer, real estate agent, mortgage broker have their very own interpretation of HST on real estate transaction.
It’s a myth that housing market is down due to HST. HST could be a great opportunity for everyone involved in the housing market to bring in more sales. HST should not be blamed for a downtrend in housing market.
With the implementation of HST in BC, a new housing rebate program was introduced, to offset the additional HST burden on home purchase. Its an exciting program and it should attract more home buyers in the market.
A prospective new home buyer can purchase a brand new home with no HST, by using BC new housing rebate program. Most of the first time home buyers trying to get their first primary residence are qualified for this program. Beside that, homes for resale are not subject to any HST.
As per the BC new housing rebate program, after implementation of HST, if someone buy a new house valued at $525,000, using the program they do not have to pay any HST. The housing rebate of $26,250 caps off at $525,000. If the property cost more than $525,000, the buyer will pay HST on the additional amount above $525,000.
Also, one very important thing to remember or mention to the prospective home buyer that even Real Estate HST rate is 12%, BC portion of HST rebate of 7%, brings down the effective rate of HST to 5%.
Since HST is a tax on consumption, the higher the property value will be, the more your HST the buyer will pay.
For a property costing $525,000 there is no difference in cost for before HST purchase or after HST purchase.
But for a property costing $1 million after HST purchase puts an additional burden of $20,000, than it would have cost before HST, or 2% of additional tax due to HST.
So, for majority of BC new home buyers, HST does not have any impact at all, with BC new housing rebate program.
For a million dollar home the net impact of HST with BC new housing program is only 2%. And it starts to go up, with the increased purchase price of the housing.
It is well known that Vancouver home prices are inflated and if someone knowingly investing in that market, a 2% additional tax on a million dollar home purchase, should not make a significant difference in their purchasing decision. For high end home buyers its a choice between paying 2% HST now, or wait and pay 5% inflated price for the property few months later on top of more than 2% HST.
How to Save HST and Benefit both Consumers and Businesses
British Columbia HST referendum will take place as specified by the BC Legislation on Saturday, September 24, 2011. Until then, consumers will pay 12% HST and businesses will be able to claim 12% HST input tax credit.
During the remaining 11 months, before the referendum, BC businesses must convince consumers about the benefits of HST to keep it from rescinding it. The benefit of 7% additional input tax credit with HST is beneficial for all businesses.
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Real Cost of a $100 Restaurant Meal
This is a simple example of how consumers are loosing purchasing power with HST tax laws.
To purchase a restaurant meal costing $100 subject to HST (12%), you will need $112.
To have $112 in disposable income after taxes, (employment income tax rate is about 22%), you will need a gross income of $136.64. Next time you go to Restaurant and your tab is $100, here is how much money you will need to make to pay for that meal.
| Meal | $100.00 |
| HST (12)% on $100 | 12.00 |
| Tips (15%) on $112 | 16.80 |
| Restaurant bill | $128.80 |
| Income tax (Source Tax 22%) | 36.30 |
| Total income to Earn for the Meal | $165.10 |