HARMONIZED SALES TAX
OHBA fears black market, calls for tax credit
November 14, 2009
Tracy Hanes
TORONTO STAR
The Ontario Home Builders' Association is calling on the provincial and federal governments to implement a permanent renovation tax credit or rebate for homeowners to mitigate the impact of the harmonized sales tax, or HST.
The implementation of the HST next July will be like "throwing gasoline on a fire" in fuelling a boom in black-market renovations, says James Bazely, president of the Ontario Home Builders' Association.
Last week, an OHBA-commissioned Altus report, "Sales Taxation and the Residential Renovation Sector in Ontario," confirmed the OHBA's fears: More consumers will choose to pay cash to avoid paying the tax on renovations, fostering an explosion in the underground economy.
"I don't think people were surprised by this (the report findings), but it's going to be a great tool for us when we go to our elected officials to discuss this, as it's not just speculation, it's in black and white," says Bazely.
The report contends that the HST, as proposed, will result in revenue loss to all levels of government, including up to $1.6 billion annually in income tax and $298 million every year in income tax.
Underground contractors do not report cash transactions for sales tax purposes. The Ontario Construction Secretariat estimates that these contractors currently account for 37 per cent of the sector.
Renovation is a $20.3 billion activity in Ontario each year, with the majority of projects (65 per cent) costing $5,000 or less, according to the Altus report. About 28 per cent of projects are between $5,000 and $20,000.
A typical Ontario household spends $5,245 a year on contractor renovations.
Bazely doesn't believe elected officials understand the magnitude of how much revenue will be lost.
He says unless governments approve a plan to discourage cash transactions, legitimate renovators won't be able to compete with black market renovators.
"The temptation will be there for the legitimate renovators to go into survival mode and go into the underground economy," he says.
Bazely cites the example of Nova Scotia, where underground renos have flourished since the HST was introduced more than a decade ago, where only one-third of consumers hire legitimate renovators for reno jobs. One-third opts not to do the work, while the other third does it themselves or hire a renovator for cash.
The OHBA believes a permanent tax credit would make the HST revenue neutral, so people would not be paying more for renos.
"People are going to want to be enjoying a tax credit and will want a receipt for renovations, which should encourage a lot of renovators to come out from the underground," says Bazely.
The OHBA this week started discussions with provincial government officials about a possible rebate or credit and will be pushing for a meeting between Ontario and the federal government.
"We see ourselves as facilitators," says Bazely.
"Both parties have to come to the table and be in agreement."
Read the BILD president's column on the fear of an underground reno market.
Toronto Star