B.C. gets interest break on HST transition

B.C. has five years to repay Ottawa its $1.6 billion transition payment, interest free.

B.C. Finance Minister Kevin Falcon

The B.C. and federal governments have agreed to a five-year interest-free repayment schedule for the $1.6 billion harmonized sales tax transition fund, but the deal does not change the province’s deficit position.

B.C. Finance Minister Kevin Falcon said Wednesday the interest break will save B.C. $118 million in interest costs, since the money doesn’t have to be borrowed all at once to repay by a March 31 deadline. Instead Ottawa will accept five annual transfers of $320 million each.

The entire repayment is still being charged to the province’s books in the current fiscal year, which ends this spring. Combined with reduced provincial revenues and slightly increased spending, B.C.’s deficit for this year is forecast to be $3.1 billion.

The terms of the referendum where voters opted out of the HST require the province to restore the PST with the charges and exemptions that existed prior to July 2010. A panel of tax experts has been appointed to review the PST for possible administrative efficiencies when it is reinstated in the spring of 2013.

When the HST was rejected, the finance ministry estimated it would bring in an additional $600 million in revenues in each of the next two years, based on economic growth and extending the seven-per-cent provincial portion of the sales tax to a variety of services.

Former premier Bill Vander Zalm, who spearheaded the petition to repeal the HST, said both the federal and provincial governments are dragging out the transition period to benefit their bottom line and that of businesses.

Businesses will have to forgo input tax credits available under the HST, and convert cash registers and accounting systems back to collecting the GST and PST separately. Low-income B.C. residents will lose HST rebates starting in 2013.

The total cost to B.C. of going back to the PST has been estimated at about $3 billion. In addition to the transition fund repayment, and the foregone extra revenue, B.C. has to re-establish a provincial sales tax administration and audit department.

About 300 provincial tax collectors were transferred to the federal payroll when the HST took effect in July 2010.

Transition rules for businesses switching from the HST back to the former provincial sales tax are expected to be announced by March 31, the end of the current fiscal year.

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