Some confusion still remains about the 1-per-cent GST drop

Friday, December 28th, 2007

Most retailers are prepared for the tax cut, but consumers still have lingering questions

Kristin Goff

OTTAWA — Retailers are ready to cut the GST by one percentage point on Jan. 1 without much difficulty, according to the Retail Council of Canada.

But in case some haven’t had time to brief staff during the Christmas rush on all the details of the switch to a five-per-cent GST tax rate, it could be wise for consumers to know how the changes will apply.

Some of the changes aren’t as straightforward as you might guess.

Take this example, based on information from tax consultant, KPMG Canada:

If you exchange the purple shirt Aunt Maxine gave you at Christmas for the same shirt in the colour blue on Jan. 2, are you due a refund on the difference in the GST?

The answer is yes, although we’re talking small change — 30 cents on a $30 shirt.

“If the shirt is purchased before Jan. 1, 2008 and returned on or after that date, the GST refund on the returned shirt will be six per cent. The exchange will be considered a purchase of a new shirt, which will be taxed at five per cent because it took place after Dec. 31, 2007,” according to KPMG.

While it is true that retailers have just gone through their busiest season of the year, Derek Nighbor of the Retail Council of Canada expects things to go smoothly when the lower tax rate goes into effect.

Retailers and other types of businesses have already reduced the GST once. On July 1, 2006, the GST was reduced to six per cent from seven per cent with relatively few reported problems, said Nighbor, vice-president of national affairs for the Retail Council.

“Our sense is, that as with the first iteration, retailers large and small will be ready,” he said.

“It is a big chunk of money.”

Nighbor estimates the tax reduction will put $5 billion into the pockets of consumers.

In most cases, the GST appears separately on bills for goods and services, making it relatively easy to see whether you are getting the reduction you are due.

But businesses do have the option of including the tax within their prices. During the last GST reduction, some businesses chose to increase their prices by an amount equal to the tax reduction, so the $12 price of a movie ticket or the $1.50 cost of a vending-machine treat stayed the same for consumers, but represented a seemingly painless way to raise prices for the business operator.

The Canada Revenue Agency has a toll-free GST information line for consumers and businesses from 8:15 a.m. to 8 p.m., Monday through Friday, to answer questions (1-866-959-7797 English, 1-866-959-7798 French). There is also information for consumers and businesses on the Internet at

Here is a sampling of questions and answers for consumers, taken from information by Canada Revenue Agency (CRA) and KPMG.

Q. What GST rate applies if I return a purchase for a cash refund?

A. If the item was purchased before Jan. 1, the cash refund should be based on the six-per-cent GST that applied at the time of purchase.

Q. What is the GST rate on the chimney cleaning done on Dec. 17, if I don’t pay until Jan. 4?

A. The GST rate is usually based on the earlier of the date that payment is made or the date the supplier issues an invoice. So if the chimney sweeper gave you a bill on Dec. 17, the rate would be six-per-cent GST. But it could be five per cent if the invoice was issued after Jan. 1, regardless of when the work was done. CRA also cautions that there can’t be an “undue” delay in issuing invoices in order to jump to the lower GST rate.

Q. I made lots of purchases in December with my credit card. Since I won’t get the bill until January, does the lower five per cent GST rate apply?

A. No such luck. You’ve already paid the six-per-cent rate when you made the December purchase, and your credit-card company doesn’t owe you a rebate.

Q. I bought furniture in October under a “don’t pay a cent” deal which delays payment until October 2008. What is the GST rate?

A. You still have to pay last year’s six-per-cent GST because you became owner of the furniture in 2007.

Q. If I purchase hockey tickets in December to attend a February game, what is the GST rate?

A. Six per cent. It is based on when you pay.

Q. What should I do if I am charged six per cent GST on a purchase made after Jan. 1, 2008?

A. First request a refund from the company that overcharged the tax. If that doesn’t work, you can file for a rebate from the government on taxes paid in error, using the form GST189, known as the General Application for Rebate of GST/HST. The form is available from GST information phone line staff or on the CRA website:

© The Vancouver Sun 2007


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