Harmonization of Ontario’s sales tax with the federal GST would lead to a massive tax on the savings of ordinary citizens, suggets wealth management firm CI Financial Corp.

“A harmonized sales tax could drain over half a billion dollars a year from the investment accounts of Ontario residents,” says Stephen MacPhail, CI president.

The Ontario government is considering harmonization as a means to reduce the tax burden of Ontario businesses.

CI says if a harmonized sales tax (HST) is applied to the same items as the GST, it would result in additional taxes being applied to investment management services, including mutual funds, segregated funds and other managed investment accounts.

The HST would generate a significant tax windfall for the Ontario, CI says. Already, the GST is costing CI Financial’s Ontario clients about $28 million a year, and CI calculates that they would pay another $44 million annually under the HST, assuming the provincial portion of the tax is set at 8%.

“That means for every $20,000 invested in a mutual fund, an investor would pay $52 each year in HST,” CI says.

For the investment fund industry as a whole, CI estimates that the GST is draining over $300 million annually from the savings of Ontario residents, and that an HST would take an additional $500 million a year. The actual impact on investors would be even larger, considering the incremental tax that would be charged to numerous defined contribution plans, CI says.

“This tax grab is the opposite of sensible public policy,” MacPhail says. “We need to be reducing taxes on capital gains and dividends, not increasing taxes and making a difficult time even worse for businesses and investors.”

MacPhail also notes the HST would be hidden from investors because the Ontario Securities Commission requires fund managers to report a single management expense ratio, a figure that includes the management fee and other costs, such as taxes. No other business is required to hide the tax from consumers in this way, CI says.

MacPhail says the GST should never have been imposed on investment management services, since it was introduced as a consumption tax and savings were to be exempt.

“Ontarians need to be aware of all of the implications of harmonizing the GST and the provincial sales tax. We urge the provincial government to avoid any new tax on savings, especially under the guise of a consumption tax,” MaPhail says.

“A harmonized tax that targeted savings would only compound the inequity of the GST and discourage the growth of Ontario’s financial services industry, which is a significant contributor to the provincial economy,” MacPhail concludes.

IE