Saturday, May 21, 2011

HST Helps BC Farmers Reduce Costs

Now that we have had the time to try out the HST system, I have to admit that I like it. I am not a big fan of taxation but can see some definite advantages for farmers and small businesses.

Before HST, farmers had to deal with two tax agencies. All farmers who had farm tax status which allows for a property tax reduction, were declared "bona fide" farmers by the provincial government. These farmers could have a PST exemption on certain farm inputs, and this exemption was usually declared at the point of purchase Quite simple, but you had to either have your farm card on you, or have your farm business and farm number on file with the seller. Some farmers would also be federally registered, with business numbers that would allow them to file GST. Since food products are tax exempt and no PST or GST is charged to the buyer, the end result would be a benefit to the farmer who would file the Input Tax Credits and receive a refund from the federal government. The list of allowable input items was different for each agency, with the federal government allowing a greater number of tax exempt items.

After HST, the whole procedure was greatly simplified and the farmer is able to claim input tax credits on more items. Much, much, better.

For small businesses, before HST there were two agencies to deal with. The provincial PST system required collected and collectable provincial taxes from sales to be in government hands each month, three weeks after the end of the month. The government didn't care if you couldn't collect from all your customers by that time - they wanted their cut, and if you were late or short, watch out. Businesses would register with suppliers so that they could be exempted from the PST on their inputs. Not everything would be charged PST - some sales items like services, trucking, most food, etc. were not charged PST. PST was at 7% in BC for the last several years.

The federal government created GST several years ago - I think it was actually meant to be temporary - and the filing periods varied with the size of the business. The GST system allowed for input tax credits to be claimed so that you could reduce the amount of taxes paid to the government. Everything had the GST attached to it. GST had been going down - from 7, to 6, and then 5%.

Actually, the new HST system is just like the GST system, except now the PST is added on so the HST is 12%. If the efficiencies to government are as big as government claims, they should be reducing the provincial portion of the HST just like the GST was reduced.

As someone who deals with some bookeeping, I see an advantage to the small business. Having one agency to deal with saves time and reduces one headache. I know that for businesses that did not previously have to charge PST it can reduce net sales. People may eat out less, not appreciate the apparent increased trucking costs, or cost to sell their house, or other services affected. Hopefully these wrinkles will smooth out.

What some people don't appreciate is that small businesses collect taxes from their customers and hand the taxes over to the government.  Small business works for the government in this way, and although it sounds simple when stated like that, it involves getting the customers to pay on time so that you can pay the government, filling out paperwork, filing the paperwork on time, dealing with audits, and keeping up with the rules and regulations.  For businesses that charge both PST and GST,  the HST system is much better.

I can see that one downside for local farmers will be to those who sell directly to restaurants. The restaurants will still have the benefit of major inputs (food) that do not have any HST attached. However, the restaurants will also have the downside of charging HST on meal, and may try to have farmers drop their prices, or may bypass local food suppliers altogether and go with a cheaper source of food.

As farmers, we are also consumers, so there is that part of the puzzle to ponder. The months we have had the HST in operation has given us an idea of its impact on our daily lives. For me, I don't spend a lot on junk food or restaurant meals. The government website and the easy to read report have been helpful to me, and I recommend everyone to give it a look and decide for yourself.


  1. I think a major issue around the HST and farming is that HST can apply to the purchase of farmland. My husband and I are hoping to purchase of a piece of ALR land on Vancouver Island - the difference between 5% GST and 12% HST is a very significant one and may end up making the property too expensive for us. Not to mention the property transfer tax, as well as HST on the real estate commission to sell our current property. While buying and selling real estate isn't a normal activity, the entire tax bill for us trying to get to a place where we can grow food is rather daunting.

  2. That's a very good point. The information I found on land purchases and HST seem to indicate that if the farm is a "hobby farm", there is no HST on the sale - but if the farm is run as a business then there is HST on the sale. That adds to the lack of incentive for ALR owners to farm if they are holding it for future sale.

  3. However, if you are buying a farm and intending to farm and register for HST, you would be eligible to claim the HST input on the purchase.