Wednesday, March 31, 2010

HST Example #1 - Self Employed Consultant

A consultant grossing $60,000 a year and charging $3000 in GST currently. This person pays GST on $6000 of inputs per year for a GST rebate of $300. About $5000 of this also catches PST which is another $350 on paid on these inputs. Total taxes paid $3050

With the HST this same consultant will pay $7200 in HST and get a rebate of $720. Total taxes paid of $6480. This consultant is out about $3430 in higher taxes.

Now if this same consultant can claim more GST expenses, the math gets better. Adding a car lease of $300 a month, makes the current net $3118 tax hit. Post HST this becomes $6048 for total increase in taxes of $2930.

For self employed consultants the HST will not be financially beneficial, but the net increase is not as bad as it is portrayed. The old net GST/PST paid was a bit more than 5%, with the HST it becomes a bit more than 10%.

I am starting with the consultant because this is one of the worst hits that will occur. The shift from a 5% HST to 12% HST does not mean a the taxes paid will increase will rise as much.


Sacha said...

You state:

"With the HST this same consultant will pay $7200 in HST and get a rebate of $720. Total taxes paid of $6480. This consultant is out about $3430 in higher taxes."

This is not a good way of characterizing it. It would be better to say "The consultant's customers are out about $3430 in higher taxes."

Basically anybody that has low inputs get the short end of the stick with HST.

Two industries that come to mind is practically anything service-oriented (consultants, finance, etc.) and restaurants (simply because their two big cost inputs, food and labour, are not GSTable).

Businesses that have tangible inputs win big time with HST.

At the end of the day, if a customer wanted to pay me $10k to do something, I could book $9524 in revenues with the GST. With the HST, the same $10k ends up being $8929 in revenues.

Arun said...

What about the majority of our population who work minimum wages and families with child poverty ? Seniors who can't survive with current pension money ? Tax large corporations and use that money to bring social change for COMMON GOOD and to become a benevolent society. HST will hurt poor the most and help large corporations and your rich friends the most. Did you know "Ed Barney" ?

Bernard said...

Interesting comment given that the poorest members of society will physically have more money in the their pockets than they do now. Beyond that the government will have more money available for services and costs for retail businesses will be lower.

The HST idea is one that works well for the poor in BC. There is no debate about that with anyone that has looked at the figures.

Anonymous said...

BC has the most terrible budget, in BC history. Add in the long arm of the HST, and then add up the amount of people, who, will then be homeless. What we get is a nightmare. Low income families, single mothers and seniors, are the target for the HST. Campbell and Hansen have given millions, to, banks, large corporations and, gas and oil company's, plus, huge tax deductions. The HST, was set up purposely for big business. From the small business, to blue collar jobs, right down to the bottom, the HST is a killer. I am tired of hearing, large corporations, will pass savings along to the people. Large corporations are, very careful to give staff, only 20 hours per week, to avoid paying benefits. The HST, has no benefit for seniors. They are hit the hardest by, the provincial governments budget the HST. The Federal government, also did nothing for them. BC has the highest number of homeless seniors, right now, that number will double.

Marketing Darcy said...

I am a marketing consultant so i can understand the benefit to small business, and i can also understand the need for the bc government to raise taxes.

But i disagree that there is "no debate" about how this will effect families that are just making it by.

lets just say that the average low income family spends $1000 per month on the basic living expenses (not including rent or mortgage)with HST added they are now looking at an additional $100 that they do not have.. so where now families are put in the position of have $100 less for food, or go into debt to pay bills.. etc.. This to me does not make sense.

I understand the with higher taxes there may be more services available to for families with low income.

I think there is many people that have managed to just squeak by without the need for "government intervention but now that they have taxed there BASIC LIVING expenses they will create a larger need for these services

wouldn't it make more sense to keep the HST but to exclude the basic living expenses like food, and utilities??

please correct me if i am wrong

Bernard said...

That math does not work, you are adding 10% to their monthly expenses and that is simply not realistic as they were not spending that much on services such as haircuts, phone bills and such.

Realistically a low income family with $1000 in monthly expenses is not going to spending that much more because of the HST. If we assume $100 for phone, internet and cable and another $40 for a cel phone. Then add another $60 a month for service type things like haircuts and $40 for meals out. This $240, 24% of the their income which I think is high for a family like this but lets go with this.

The extra you pay on that is $16.80.

Now let us assume that they spend $200 a month on retail goods that collected GST and PST. Based on the comparison of BC to other Canadian provinces, since the HST has come in there has been a 2% savings on retail goods. This gives them a savings of $4

The net down for them is $12.80, or 1.3%.

To have to pay $100 more in taxes because of the HST, you need to spend about $1450 in services per month that did not collect PST. You have to then remove the benefit for lower retail prices, mostly seen as no price increases and not a physical fall in prices.

To be spending $1450 on services that cost more, and assuming this is 20% of total post tax income (rent/mortgage included in total) giving you a post tax income of $7250 a month.

My estimate is that you would have to earning more than $125K per year to end up paying $100 a month in new tax costs.