For the majority of consumer purchases, the impact will be minimal, since you already pay PST and GST on many items. However, products and services that were previously only charged the GST, will now be "Harmonized".  That means you will pay more.

 

Mutual funds and fee-based accounts

Previously only 5% GST was charged to your mutual fund management fees (MERs).  An extra 8% will now apply.  Sadly, most investors are not even aware that they are being charged anything at all on their mutual funds because the MERs are hidden.  The MER is paid automatically and what you see on your statement is always NET of fees.

 

Fee-based accounts will also be charged more. For example, if your annual fee was $10,000, previously, you would have been paying $10,500 (including GST).  Now you will be paying $11,300 (including HST). One main advantage: fees paid for non-RRSP accounts are tax deductible!

 

Impact on purchases

Fortunately, some items, such as basic groceries, municipal transit and prescription drugs, will continue to be purchased tax-free. Print newspapers, books, diapers, children's clothing and footwear, children's car seats, and feminine hygiene products will also be eligible for a point of-sale rebate of 8%.

 

However, if you are on a budget, it is important that you plan for the higher taxes on many items. The HST will especially impact women, who are already subject to the GENDER TAX - they pay more than men for haircuts, dry cleaning, shoes, etc. Now these items and others such as vitamins, internet bills, and gym memberships will all be taxed extra.

Around the house

Many household expenses that currently are not subject to the PST will be included under the HST. These include: basic cable TV, local residential phone, landscaping, lawn care, private snow removal, home renovations, and home service calls by an electrician, plumber or carpenter. You will also have to pay HST on real estate commissions. Thankfully, home insurance and mortgage interest costs remain tax-free.

 

Travel

HST will now be charged on taxi trips, hotel rooms and any domestic air, rail and bus travel originating in Ontario, effectively making many vacations 8% more expensive. Private resale of vehicles is also subject to HST, as is the price of gasoline or diesel.

 

Sports and health

Beginning July 1st, you will be charged HST on gym and athletic memberships, green fees for golf, sports and fitness lessons (ballet, karate, hockey, soccer, etc.), as well as hockey rink and hall rentals. Massage therapy and fitness training are also subject to the HST.

 

Professional services

Legal and accounting fees will become HST-taxable on July 1st. The final HST nail in the coffin (pun intended) is that when we die, our funeral will now cost 8% more (funerals were previously exempt from PST).

 

Tax relief

Many Ontarians will be receiving supplemental tax-free payments from the Ontario government in order to help the transition to the HST:

 

• Eligible families - including single parents and senior couples with net incomes $160,000 or less will receive three payments totaling $1,000.

 

• Eligible individuals with net incomes $80,000 or less will receive three payments totaling $300.

 

What to do with your tax relief dollars? Invest them TAX-FREE of course!

While many investments offer opportunities for tax-deferral (RRSPs, pensions, insurance, capital class mutual funds, etc.), most Canadians only have two alternatives that are tax-FREE: your principal residence and the TFSA.

 

Your home

The house you live in is considered your principal residence.  If it grows in value and you decide to sell it, there is no capital gain tax to be paid. (This does not apply to secondary properties such as a cottage or income property.) 

 

So, any investment you make in your home is a wise, tax-free investment.  Go ahead and pay down your mortgage, or increase the value of your property by renovating or landscaping.  When the investment generates tax-free growth, it's worth considering.

 

The new Tax-Free Savings Account

Let me introduce you to your new best friend...the TFSA.

 

• Inception date: January 2009
• Contribute up to $5,000 per year
• Unused contribution room is carried forward indefinitely
• Save and invest tax-free
• Income and capital gains earned in a TFSA are not taxable
• Withdrawals are not taxed and won't affect income-tested benefits and credits
• Eligible investments: Similar to RRSPs

 

Final thoughts

The new HST can present considerable additional expenses, which means that budgeting, estate planning, and tax planning become even more important. 

 

While we will never be able to eliminate the impact of taxes altogether, we can certainly show you ways to minimize it.  To discuss further, please call me at 905-469-7074 or email me at natalie.jamison@rbc.com

 

I wish to thank Dynamic mutual funds for helping me gather some of the information above.

 

Stay wealthy,

Natalie.