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.
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