GST Reduced to 5%
Canada’s Goods and Services Tax Decreased January 1, 2008
For the second time in two years, Canada's GST (Goods and Services Tax) has been reduced.
Effective January 1, 2008, the GST has been reduced to 5% from 6%. For provinces employing an HST (Harmonized Sales Tax) – New Brunswick, Nova Scotia, and Newfoundland and Labrador – the GST portion of the HST is reduced by one percent, to 13% total.
For GST that was payable in 2007, the rate payable remains 6% even if payment is made in 2008 and/or services are delivered in 2008. However, if an invoice is issued in 2008 for services performed in 2007, the GST charged should be 5%.
GST Reduction Effect on Consumers
GST cuts represent good news for consumers, who will find more money in their pockets when making purchases subject to GST in 2008. However, for consumers who purchased items under payment plans or layaway plans that extend into 2008, the GST decrease applies only to payments made after January 1, 2008. In fact, consumers who purchased products under delayed payment promotions are still required to pay 6% GST on products they took possession of in 2007 – even if payments begin in 2008.
GST Reduction Effect on Businesses
Businesses of all sizes are, once again, required to adjust their cash registers and accounting practices to implement the reduction in GST. The Canadian government has indicated that it will not reimburse for any expenses related to such adjustments, nor will it adopt any lenience in penalties for underpayments which result from miscalculations.
Businesses that continue to collect 6% must remit the full amount they collect when complying with GST remittance procedures. Or they are required to refund the overpaid tax amount to the consumer.
Businesses that use the Quick Method of Accounting to determine GST payable should note that the rates have been adjusted to reflect the new rate beginning January 1.
Argument for More Taxes, Not Less
When the tax cuts were initially announced by Finance Minister Jim Flaherty in October 2007, public reaction was mixed. While the tax cuts reflect a time of economic prosperity in Canada, some called the meager 1% decrease meaningless to the average consumer. Some even argued for more taxes, not less, because while the end consumer barely notices the difference, the public coffers most certainly miss the estimated $6 billion, which will inevitably impact the Canadian government’s ability to adequately fund social initiatives and replace aging infrastructure – both priorities identified by the country’s opposition parties. “The GST cut means Canadians will save "a few dollars off a stereo" but the money could be better put to use helping the poor, or improving funding for municipalities, child care and the environment,” said NDP Leader Jack Layton in a Toronto Star article.
For more information, businesses and consumers can call 1-866-959-7797 or visit the Canada Revenue Agency online.
