Cole, Elizabeth FIN:EX Flanagan, Paul FIN:EX ‘Wednesday, March 26, 2009 8:01 AML Kondall-Craden, Rena PAB:EX; Armstrong, Glen E FIN:EX; Cole, Elizabeth FIN:SK Patterson, Sheirl PAB:EX; Keast, Gordon PAB EX : Re: Globe and mai ont to hermorize? Possibly. We have prepared a note for the minister on this. Original Message From: Kendall-Craden, Rena PAB:EX To: Armstrong, Glen E FIN:EX;.Flanagen, Paul FIN:EX 5 Cci Patterson, Sherri PAB:EX; Keast, Gondon PAB: Sent: Wed Mar 25 07:56:39 2069 Subject: Fi’ Globe and mail: ont to harmonize? Hello and good norning. Is there @ possibility we will get questions on harmonizing tax in BC? RKC Mcsuinty risks consumer backlash with move to harmonize sales tax Globe and Mail Wednesday, March 25, 2009 Page Ao2 By Karen Howlett TORONTO BLENDING THE TAX $46,576 The blended consumption tax runs the risk of infuriating burdened consumers, as a study shows the harmonized system would add $46,576 to the purchase of a new home in Toronto. The Ortario government wil announce in tomorrow's budget that it will sign a tentative accord with Ottawa to harmonize the province's 8 per cent provincial sales tax with the 5 per cent federal goods and services tax, sources familiar with the document seid. The accord, a first step in what 1s expected to be a lengthy process to reform the province's sales tax, was wellconed by business, but could anger consumers, who would end up paying @ single, blended consumption tax of 13 per cent Consumers fear that taxes would increase on basic goods such as heating oil, dlapers and children's clothing, all of which are currently exenpt from Ontarlo sales tax. Under harmonization, @ new value-added tax would apply to all products covered by the goods and Services tax, and consuners would see one charge on a sales receipt. A hermondzed systen would add $46,576 *e the purchase of a new hone in Toronto, according to one study. But “the biggest political risk for the government 1s at the bottom of the economic spectrum: Poor Families and those Joining the swelling ranks of the unenployed who can least. afford to pay an extra 80 cents in tex on a $9.99 pair of baby shoes. The proposed tax changes are part of an extraordinary move by Premier Dalton McGuinty to address the province's stunning reversal of fortune. treanso officially became a poor cousin of Confederation this year, receiving paynents under the national equalization program for the first time, and it 1s not at all cleer uhether Canada’s ost populous province will ever reclain its status as the country's econemle Powerhouse. Normorization would help’ the ailing province weather the recassion by making businesses nore competitive, because they could receive a refund for taxes paid on goods and services and other purchases to run thein operations. Wr. McGuinty would not confirm yesterday that the reform is part of the budget, but he acknowledged the risks. id don't think we've been put in government to choose what's easy," he told reporters. He said in Jenuary that he was considering harmonizing the two taxes. Yesterday, however, he said. the initiative could dle unless: the Harper government agroes to drop the GST from household goods that are not charged provincial sales taxes. Federal Finance Minister Jin 1Flaherty has been urging Me. McGuinty.to harmonize: the two taxes for more than a year. The Premier noted that when three of the Atlantic provinces harmonized their sales taxes with the 6st back in 1997, at the urging of forner finance minister Paul Martin, thoy received conpensation from the federal government because their tax revenues declined. “It's not. the kind of thing you would want to pursue unless at the sane time you were going to find a way to protect families," vir. McGuinty said. The backlash has already begun. ‘The Building Industry and Land Developnent Association’ released a study earlier this month, showing that harmonization would cost hone buyers $2.4-billdon more a year. Tax increeses on new hone sales would range from $12,00@ to more than $46,000. “I fear the worst,” Stephen Dupuis, president of the association, said in an interview yesterday. “We're the most expensive thing people buy, so the impact is just huge." Opposition menbers also weighed in on harnonization yesterday, revealing that the government will face opposition from both sides of the political spectrum. x “On the surface, we're very, very nervous about bringing in harmonization at the very tine when this province is really belng faced with challenging tines," said Bcb Runciman, interim leader of, the Progressive Conservatives, New Democrat Leader Andrea Horwath criticized harmonization. as a “regressive” schéne. "This 4s nothing out a sales tex grab that will nickel-and-dine families that are elready feeling the squeeze,” she said. Fann Poschnann, vice-president of research at the C.D. Howe Institute, said ‘the governnent could introduce measures for consumers, including rebates for low-income families, to compensate thon for paying taxes on products now exenpt from provincial tax.Cole, Elizabeth FIN:EX Cole, Elizabeth FIN:EX Wednesday, March 25, 2009 9:44 AM ‘Armetrong, Glen E FIN:EX; Kendal-Craden, Rena PAB:EX ( Andrew, Marc FIN:EX RE; Globe end mat: cnt to harmonize? yes, this is the final draft. Original Message: From: armstrong, Glen € FIN:EX Sent: Wednesday, March 25, 2669 8:37 AM To: Kendall-Craden, Rena PAB:EX Cci Cole, Elizabeth FIN:EX; Flanagan, Paul FIN:EX; Andrew, Marc FIN:EX Subject: RE: Globe and mail: ont to harmonize? Theminister has anew BN from lest week. oi 900° 0 es = BN attached (I believe it is the final draft - Beth can confirm whan she gets in) Original Message- From: Kendall-Craden, Rena PAB:EX Sent: Wednesday, March 25, 2009 8:19 AN To: Armstrong, Glen E FIN:EX; Flanagan, Paul FIN:EX Cc: Keast, Gordon PAB:EX Subject: RE: Globe and mail: ont to harmonize? Hey thene: is this up to date? RKC -original Message From: Anastrong, Glen E FIN:EX Sent: Wednesday, March 25, 2009 8:¢0 AN To: Kendall-Craden, Rena PAB:EX; Flanagan, Paul FIN:EX Subject: Re: Globe and mail: ont to hormonize? Ninistes has © oN. I've given CT, GW,and mare a heads” up Cheers Original message From: Kendall-Craden, Rena PAB:EX To: Armstrong, Glen E FIN:EX; Flanagan, Paul FIN:EX (ci Patterson, Sherri PAB:EX; Keast, Gordon PAB:EX Sent: Wed Mar 25 07:56:39 2009 Subject: FW: Globe and medl: ont to harnonize? Hello. and good morning. Is there a possibLlity we will get questions on harmonizing tax in BC? RKC McGuinty risks consumer backlash with move to harmonize sales tax Globe and Nail Wednesday, March 25, 2609 Page AQ1 By Karen Howlett TORONTO BLENDING THE TAX $46,676 1‘The blended consumption tax runs the risk of infuriating burdened consumers, as a study shows the harmonized system would add $46,676 to the purchase of a new home in Toronto, The Ontario government will anrounce in tonorron's budget that it will sign a tentative accord with Ottawa to harmonize the province's 8 per cent provincial sales tax with the $ per cent federal goods and services tax, sources famlllar with the document said. The accord, a first step in what is expected’to be a lengthy process to reform the province's sales tax, was welconed by business, but could anger consumers, who would end up paying 3 single, blended consumption tex of 13 per cent. Consumers fear that taxes would increase on basic goods such as heating ofl, diapers and children's clothing, @ll of which are currently exenpt from Ontario sales tax. Under harmonization, a new value-added tax would apply to all products covered by the goods and services tax, and consumers would see one charge on 2 sales receipt. & harmonized system would add $46,676 to the purchase of a new home in Toronto, according to one study. Sut the biggest political risk for the government is at the bottom of the economic spectrun: poor families and those joining the swelling ranks of the unenployed who can least afford to pay an extra 88 cents in tax ona $9.99 pain of baby shoos. . The proposed tax changes are part of an extraordinary move by Premfer Dalton McGuinty to address the province's stunning reversal of fortune. Ontario officially becane a poor cousin. of Confederation this ycar, receiving poynents under the national equalization program for the first tine, and it is not at all clear whether Canada's most populous province will ever reclaim its status as the country's economic Powerhouse, Harmonization would help the ailing province weather the recession by making businesses more competitive, because they could receive a refund for taxes paid on goods and services and other purchases to run their operations. Mr. fcGuinty would not confirm yesterday that the reforn is part of the budget, but he acknowledged the risks. "r don’t think we've been put in goverment to choose what's easy," he told reporters. We said in January that he was considering -harmonizing the tuo taxes. Yesterday, however, he said the initiative could die unless the Harper government agrees to drop the GST from household goods that are not charged provincial seles taxes. Federal Finance Minister Jim Flaherty has been urging Mr. McGuinty to harmonize the two taxes for more than a year. The Premier noted that when three of the Atlantic provinces harmonized their sales taxes with the 6sT back in 1997, at the urging of former finance minister Paul Nartin, they receivee compensation fron the federal governnent because their tex revenues declined. ‘it's not the kind of thing you would want to pursue unless st the same time you were going to Find a way to protect families," Mr. McGuinty said. ‘The backlash has already begun. The Building Industry and Lend Development Association released a study earlier this aonth, showing that harmonization would cost home buyers $2.4-billion more a year. Tax increases on new home sales would range fron $12,@00 to nore than $46,000. "I fear the worst," Stephen Dupuis, president of the association, said in an interview yesterday. "We're the most expensive thing people buy, so the impact 1s Just huge.” Cpposition nembers eso weighed in on harmonization yestorday, revealing that the government wil] face opposition from both sides of the political spectrum. “on the surface, we're very, very nervous about bringing in harmonization et the very time luhen ‘this province is really being faced with challenging times," said Bob Runciman, interim leader of the Progressive Conservatives. New Denocret Leader Andrea Horwath criticized harmonization as a "regressive" schene. "This As nothing but a seles tax grab thet will nickel-and-dine families that are already feeling the squeeze,” she said. Finn Poschnann, vice-president of research at the C.D. Howe Institute, said the government Could intreduce neasures for consumers, including rebates for low-incone families, to compensate them for paying taxes on products now exenpt from provincial tex.Colo, Elizebath FIN:EX Fricay, March 27, 2008 12:49 PM ‘Andrew, Mare FIN:EX Chambers, An B FIN‘EX Subject: FW: Apparently Ontario hes confirmed and provided same detail Attachments; 184734 Hatmenzaton BN doc: Appendix doc; «4. ‘Not Response = HiMare, live attached the harmonization BN (plus 3 appendices) 20d. maapenane _ |e Resconsie— Se) From: Armstiong, Geen & FIN:EX ‘Sent: Friday, March 27, 2008 12: : | To Cole, Elizabeth FIN:EX Cet Andrew, Marc FIN:EX Subject: FW: Apparently Ontario has confirmed and provided some deteils Beth, please ema the harmonization no aN, sassonsne ‘to mare. Thanks Sent: Friday, March 27, 2009 10:50 AM Tot Armstrong, Glan E FIN: ‘Subject: RE: Apparently Cntario has confirmed and provided some details Glen - do you have an electronic version of this BN handy? From: Armstrong, Glen E FIN:EX Sent: Thursday, March 26, 2009 3:12.4M To: Andrew, Marc FIN:EX ‘Subject: Fw: Apparently Ontario has corfirmed and provided some details Importance: High From: Cole, Elizabeth FIN:EX To: Armstrong, Glen E FIN:EX Sent: Wed Mar 25 19:13:27 2009 Subject: Apparently Ontario has confirmed and provided some details http://www. thes! obeandmail.comv/servlet/story/RTGAM.20090325,wPOLonibudget0325/BNStary/palities/hom 2Ontario will exempt some | goods from harmonized tax KAREN HOWLETT and BRIAN LAGHI From Thursday's Globe and Mail March 25, 2009 at 10:00 PM EDT TORONTO — The Oniario government has moved to douse a firestorm of criticism over its plans to reform the provincial sales tax by exempting a umber of basic goods, including children's clothing, diapers and new homes costing Jess thar: $400,000. The government also proposes to help consumers adjust to the new regime by providing one-time compensation of $1,000 —in three eqiial payments over 12 months ~ to families with mua incomes of less than $160,000. Goverment sources eonfirmed last night that today's budget will {include plans to harmonize the 8-per-cent provincial sales tax with the 5-per-cont federal goods and se-vices fx, The sources also confirmed thatthe government is taking the sting out of harmonization for consumers by exempting fiom the new blended sales tax many household goods that are not currently subject to provincial sales taxes, However, not everyone is kappy. Newly built homes that cost moze then $400,000 will be hit with higher taxes Gas much as $46,676 in Toronto, according to one study ~ while the federal government has agreed to drop the GST for those under that threshold, Closing costs on all homes, including realtor fees, legal services and home. inspections, will climb beceuse they are not currently subject to provincial sales taxes, The Toronto Real Estate Board estimates that will add $2,037 to the purchase of 2 $360,000 home, TREB spokesman Von Palmer called it 2 “double whammy” for Toronto, which introduced a lend transfer tex last year. fWe're shocked at this. We'e sill reeling from the land transfer ini,” he said, I think the last thing the home tarket needs right now is increased taxes on homes, [remfer Dalton MeGuinty's government hes been under siege over its plans 10 introduce tax reforms as part ofa ‘roader initiative to help the province's ailing economy. Constituents have flooded theix MPPs’ constitiency tices with telephone calls, expressing fears that taxes would increase on basic goods that are camrently exempt From Ontario sales tex. And opposition members have seized on harmonization asa new opportunity to label Mr. MeGuinty a tax-raising promise breaker, Ta fact, any doubt thet the provincial budget will be delivered ia an atmosphece of crisis and intense sorting sins dispelled yesterday, when Finance Minister Dwight Duncen trod on tradition, e did not buy u new ait of shoes for presenting the bndget, nor did he hold the usual pre-budget photo-op. Mis MeGuinty has sic his government would not pursue harmonization unless the Harper government agreed io drop the goods and services tax from household goods or provide compensation inthe form of rebates for low-income households, . ete going to have a budge that protets families and strengthens the economy,” he told reporters yesterday moming. With the help ofthe feceral government, it appears that Mz, MeGuinty will be able to make good on that Hledge, ‘The federal government has agreed to exempt basic goods from the GST. The deal will alo deliver saultibiilion dollars in compensation to Ontario, said sources familiar with the tentative accord ‘signed by the ‘v0 governments, ‘The compensation will be similar to what three of the Aflantic provinces received when they harmonized their {exes in 1997. The former Liberal government paid Nevifoundiand and Labredor, Nova Seetia and New Brunswick $961-millior.A source also told The Globe and Mail that the government would put the blended tax in place before the 2011 provincial election. Businesses have been pushing for harmonization because it will make them more competitive by reducing their costs. They could receive a refund for taxes paid on goods and services to run their operations. The federal government also plans to bring a bill to Parliament for approval, which could well be tricky for the federal Liberals, Voting for the blended tax might jeopardize federal Liberal popularity in the province, where it hopes to make large gains in the next clection. By the same token, Voting agaitis! the proposal could create {tension between the federal and provincial wings. Liberal Leader Michael Ignatieff has foiged substantial ties with members of Mr. MoGuinty's government. ‘The payoff for the federal government comes in the backing it gives Finance Minister Jim Flaherty as he Presses other provinces to adopt a blended tax, something the government has beer secking since its election in 2006: British Columbia, Saskatchewan, Manitoba and Prince Edward Island have all resisted harmonization Alberta bas no provincial sales taxes. Mr. Flaherty was tight-lipped about the harmonization idea yesterday. ‘The minister, who has been criticized for saying the province was not a good place to invest, was asked if he now thinks the opposite “if you would like to ask me that question after they publish their budget,” he said, “Td love to answer it.” Mr. Pelmer of the TREB said the sales tax harmonization will disproportionately affect Toronto, where new detached homes seldom sell for under $400,000. It was unclear how the tex would be applied — if, for instance, oa the sale of a new $500,000 home, the harmonized tax would apply to the full price, or only the $100,000 that exceeds the threshold, fit applies to the full price, Mr. Palmer said one could expect a surge in listings for $399,999 to avoid the new tax. “How will that distort the mackeiplace? People will realize that's the threshold,” he seid, Mr. Palmer cited a study estimating the harmonized tax will rise $3 13-million for the province in taxes on the closing costs of home sales alone.Armstrong, Glen E FIN:EX From: ‘Andrew, Mare FIN:EX Friday, March 20, 2009 3:61 PM Armstrong, Glen E FIN:EX Colo, Eizabeth FIN:EX Re: Revenue contact, ‘Thanks for this, From: Armstrong, Glen E FIN:EX To: Andrew, Marc FIN:EX Ce: Cole, Elizabeth FIN:EX Sont: Fri Mar 20 15:01:01 2009 ‘Subject: FW: Revenue contract Mote: Bath ust pointed outa signtcant typo in my ema ise Sony eboutthat. ‘Mare: we recently sent up a Briefing Note package to the Minister on harmonization for information. Doug Foster has den doing some work onthe cortract Revenue ffermerly SBR) has with EDS to hele collect debts owed tothe province, including tax debts. s 43 51 [sy Glen Armstiong AADM Strategie and Corporate Foley Division Ministry of Finance (280) 387-9014 Fax: 387-8051 ‘gen.anmsirong@gov.be ca Frome densene, cen EAs Sent Fay Horch 20, 2009 2:39 Tor "Andrey, MarcrINEX Subject FW: Revue contact Marc: we recently sent up a Briefing Note package to the Minister on harmonization for information, Doug Fosterhas been doing some werk on the contract Revenue fformerv SBR) has with EDS io help collect debts owed fc the province, inclucina tax debts. s.1 ‘saa.sur _ - —Sheers Glen Armstrong ADM Strategic and Corporate Policy Division Ministry of Finance (250) 387-9011 Fac: 387-061 .aimstrons ca Front _frmaveng Gen FNox ‘Sent Fay, March 2, 2003 224 er Cae, Haabet FRE Ge Fanagan, Pau FINES Subjects FV: Raven conact ‘suasa Se : Glen Armstrong A/ADM Strategic and Corporate Policy Division Ministry of Finance (250) 387-0014 Fax: 367-061 atmstrong@aov.be.ca ester, Bau FIRB “Thredey, Mirch 19, 2009835 a4 Amstongy ln € FINE Subject RE! Revere cantast Se - | From: rack Gen ANE Sent werescay March 18, 20092 To: rower, 2009 FINE Subject: Reverue contact Dou.wehave 2 BN with the minister on harmonization ¢ 9s 47 13,517 __['d ike an upcaie from you on what you know 80 we Ga Important piece, ‘end Up some supplementary Info, Its an — Thanks Glen Armstiong ‘ ADM ‘Strategie and Corporate Policy Division Ministry of Finance (280) 387-9011 Fax: 287-8061 strona @gov.be.caCole, Elizabeth FIN:EX From: Armstrong, Glen E FIN:EX Sent: Thureday, March 26, 2009 £:01 AM Flanagan, Paul FIN‘EX; Cole, Elizabeth FIN:EX Goss, Jordan T FIN:EX FW: Ontaro Budget See my email below. Louise called me backs 16. ‘516 = - - : 2 She will arrange a call with us for tomorrow if we want or need clarification, Pm in MFEX all morning tomorrow so ifwe think we need a meeting we can decide this afternoon. Cheers From: Armstrong, Glen E FINIEX Sent: Thursday, March 26, 2009 8:43 AM To: ‘Louise.Levonian@fin.gc.ca’ ‘Subject: Ontario Budget louise: (sia a Isai ThanksArmstrong, Glen EFIN:EX. Louise. Levorien@tin.gc.ca ‘Thureday, March 28, 2000 6:10 PM Aumstong, Glen & FIN:EX RE: Cnilatio Budget Louise Levonian ‘APselstent Deputy Minister | Scus-rafniseo aol par etc Tax Policy Branch | Direction de ia politique de rimpot Department of Finance Canada | Ministére des Finances Canada Ottawa, Canada K1A 065 Lguleo Levonian@th.go.cg ‘Telephone | Telephone 613-992-1680 / Facsimile | Tolécopleur 613-996-0660 / Teletypewriter | Tél6knprimeur 613-995- 1465 Government of Genada | Gouvernement du Canada Weel Bizirestorimcs pe teams Canadil len.Armstrong@gpv.be.ca] From: Armstrong, Glen E FIN:EX [mal Sent: tarch 25, 2009 7:10 PM To: Levonian, Loutse Subject: RE: Ontario Budget Thanks Loulse.le43.g4¢——— S386 _ Mary thanks - From: Loulse.Levonian@fin g¢.ca [maio:Loulse.Levonlan@fin.ge.ca) Sent: ‘Thursday, March 26, 2609 3:17 PM To: ndbums@gov..pe.ca; heather wnod@gou.mb.ca; kmegregor@finarce gov sk.ca; Armstrong, Gen £ FIN‘EX ai Stephen. Watson@gov.mb.ca; esrinvas@tinance.gor ska; Flanagan, Paul FIN:EX; Nancy Horsman@tin.gc.ca; Bran. Erneweln@fn.gc-a; Lise Potvingfn.gc.ca; Kel Noray@n.gc.ca; Francine. NoRa@in.gc.ca; Bilchardler@nh.gc.ca; Peter Turner@fngo.ce ‘Subject: Ontario Budget ‘As you may be aware, the Onterlo Budgo! tabled today includes an announcement ofthe provinces nent to ollminate its rela sales tax end Jon armademized harmonized sales tex framework. For your information, | am allaching a copy of the Merrorandum of Agreement between Canada and Oniatio in this regard. 1am avallable fo discuss. -< <> Louiee Lovonlan ‘AlAssistant Depuly Minister | Sous-ministre adjoint par Interim ‘Tax Policy Branch | Direction de la poltique de impotDepartment of Finance Canada | Ministére des Finances Canada Cttave, Canada K1A 066 Louise Levenlen@iinacica Telephone | Téléphone $13-892-1630 / Facsimile | Télécopieur 613-996-0680 / Teletypewriter | Télélmprimeur 619-095- Government of Caneda | Gouvernement du CenadaMemorandum of Agreement Concerning a Canada-Ontario Comprehensive Integrated Tax Co-ordination Agreement Confidential March 2009Memorandum of Agreement Concerning a Canada-Ontario Comprehensive Integrated Tax Co-ordination Agreement BETWEEN: ‘The Government of Canada (referred to as ‘Canada’, as represented by the Minister of Finance of Canada; AND: ‘The Government of Ontario, (referred to ae “Ontari Finance of Ontario; Preamble This Memorandum of Agreement ("MOA") refiects the strong commitment by Canada ‘and Ontario to work collaboratively to bull @ stronger economic foundation. 4s represented by the Minister of Pursuant to this MOA, both parties commit to using their best efforts to negotiate a new Canada-Ontario Comprehensive integrated Tax Co-ordination Agreement (hereafter referred to as the "Canada-Ontario CITCA", together with any necessary releted agreemenis, whereby the Canada Revenue Agency ("CRA") and the Canada Border Services Agency (‘CESA") will administer an Ontario Value-Added Tax (OVAT?) ‘This MOA forms the framework for concluding the Ganada-Ontario CITCA, . Canada-Onterio Comprehensive Intecrat ion Agreement Canada and Ontarlo agres to make thelr best efforts to fulfll the undertekings set out in this MOA In order that all policy and aciministrative cetalls are finalized, Including any necessary legislative processes and tho signing of appropriate agreements, before ‘March 31, 2010, except where otherwise specified in this MOA. Canada undertakes to seek the approval of the Governer-in Council to enter into an ‘agreement under Pert Ill.1 of the Federal-Provincial Fiscal Arrengemenis Act consistent with the terms of this MOA. The partios understand that this MOA does not constitute an ‘agreement pursuant to subsection 8.3(1) of the Faderal-Provinsial Fiscal Anangemenis ct. Onterio undertakes to seek authority to enter into the Canada-Ontario CITCA, Canada and Ontario will use their best etforts to conclude the Canade-Ontario CITCA within efx months of having signed this MOA, Implementation Date ‘Subject to both Parties having signed the Canada-Ontario CITCA, and subject to legislative eporoval, the Parties will work towerd the impostton of the proposed OVAT by the CRA/CBSA on July 1, 2010. Subject to these approvals, the CRA/CESA will have the necessary systems in place to effectively implement the OVAT on July 1, 2010, Confidential - Canada-Ontarto Memorandum of AgreementFederal Transitional Assistance to Ontario To help offset the transition costs essoclated with the implementation of the OVAT and ‘the winding down of the retail sales tax administration in Ortario and because moving to an OVAT would support economic groath and job creation, Canada will make two transfer payments ‘ctaling $4,300 milion to Ontario. The schedule of transfer payments wil be as follows: $3,CO0 milion upon the date of imposition of the OVAT and $1,300 raion one year following the date of imposition of the OVAT provided the tax continues to be in place one year after the date cf imposition of the OVAT. Onterio agrees to remain a party to the Canada-Ontario CITCA for a period of at least five years following Imposition, Ontario Value-Added Tax ‘An 8% OVAT would be implemented under the federal Excise Tax Act. Ontario will Propose legislation to give effect to the Canada-Ontarlo CITCA and any other provinclally administered measures appropriate to the transition to the OVAT. ‘The OVAT would have the same tax base as the Goods and Services Tax (GST), subject to the exceptions described below, incial Tax Policy Fiextbit ‘The Canade-Ontario CITCA will confirm Ontario's flexibtity, subject to reascnable notice Provisions, to: ~ Increase or decrease the OVAT rate afler two years from the date of OVAT implementation; ~ designate a imited number of OVAT point-of-eale rebates, not exceeding 5%, in aggregate, of the estimated GST base for Onterio subject to data avalabilily and definitions used in the Canadian System of National Accounts or other mutually agreed upon data source definitions and methedologies. For greater certainty, point-of-sal rebates that Canada agrees to administer for Ontario will inciude | children’s clothing, feminine hygiene products and books; | ~ temporarily deny for & period of up to five years a portion, up to 100%, of allowable business input tax crecits (*ITCs") based on a select list of tems to be determined ‘by Ontario (not to apply beyond the items subject to the current ITCs denials under the Quebec Sales Tex). Following this Period, full ITCs will be phased-in, in: ‘equal annual proportions, over a Period of up to three years, Ontario would advance the timeline fer the Phase-in of full TCs should fiscal circumstances allow; and ~ et OVAT rebate rates and thresholds for Municipalities, Universities, Schools, Cofleges and Hospitels (MUSH), Chavilles, qualifying NPOs ‘and New Housing, subject to matching other federal GST administrative and structural parameters, Canada agrees to Introduce legislation to enable the tax policy flexibility noted herein, Confidential ~ Canada-Ontario Memorendum of AgreementCommon Tax Base Except as provided In this MOA under the heading Provincial Tax Policy Flexibilty, Ontario will enter into the Canada-Ontarlo CITCA and will be bound by tax base changes made by Canada with respect to the GST. However, where Canada proposes a tax base change that would result in a reduction of more than one percent of OVAT revenues (net of provincial rebates provided for under this OA, and ITCs), Conada may Implement the change only if the Minister of Finance of Ontario provides written agreement to the change prior fo implementation, If Caneda implements the tax base change without consultig Ontario, or proceeds without Ontario's written agreement, Canada agrees to fully compensate Ontario for the revenue reduction for every year that the change Femains in place and the Canada-Onterio CITCA remains in force. Canada and Onterio wil! develop reasonable notice provisions in the Canada-Ontatio crTca. Collection and Administration ‘The OVAT, Including all eligible rebates and temporarily restricted ITCs provided for in this MOA under the heading Provinclal Tax Policy Flexibilty, will bo collected and ‘administered, at mutually agreed upon service and compliance levels, by the CRA/CBSA at no charge to Ontario, ‘In adcition, Cenads wil be solely responsible for all CRAICBSA stertup and ongcing costs, including their development and systems costs. For greater clarity, these costs wil not reduce or be offset against the $4,300 milion in total transfer payments provided for in this MOA under the heading Federal Transitional Assistance to Ontario. ayment of Revenues Collected Canada and Onterio agree thet revenues payable to Ontario will be based on the Tevenue allocation framework as set out under the Cenade-Oniario CITCA, subject to the following: Canada agrees to pay Onterio its revenue entitlements on a dally basis. For greater clarity, the allocation for a tax enttiement year will bo paid to Ontario inestmated dally amounts determined using the revenue allocation framework beginning July 1, 2010, The payments will be based on the estimate for the tax entitiement year, and will include adjustments to these ‘amounts relating to scheduled revisions end reconciliations as provided for Under the revenue allocation framework. ‘The revenue allocation framework to be included in the Canada-Onterio CITCA will be based on the framework in the CITCA between Canada and the HST provinces. Exchange of Infor ‘There wil be full co-operation between Canada and Ontario with respect to the exchange cf Information releting to the OVAT. The specific tetms on information exchange and ‘mutual assistance will be provided for in agreements to be enlered Into between Canada and Ontatio (@.9., the CRA and Ontario ard the CBSA and Ontario). Such agreements will engure the timely provision of available OVAT specific data and other OVAT related Confidential ~ Canade-Ontarlo Memorandum of Agreemant 3information to Ontario, as may be disclosed pursuant to the appropriate laws and regulations. Canada and Ontarto wid work to establish mechanism(s)/agreement(s) to provide for the management of Issues related to cllent services, compliance and enforcement of the OVAT by the CRA/CESA. Best efforts will be made to conclude these agreements in a timeframe that is consistent ‘with, and no later than, the target date for the conclusion of the Canada-Ontario CITCA. noted earlie Human Resources Canada end Onterio acknowledge that they each must consider relevant legislation end policies, and have collective agreement obligations with thelr respective bargaining agents. Within this context, the Parties agree to negotiate the best possible arrangements, to be contained within a Human Resources Agreement, for employment at CRACBSA vilthin Ontario, of Ontario Public Service employees effected by this MOA, a Inistreti VAT in Ontari Given the significant presence of CRA/CBSA activity and operations in Ortario, and the previous clause pertaining to Human Resources, Canada will maximize the amount of activities and operations carried on in Ontario for OVAT. Where it can be demonstrated, with respect to specific OVAT activites and operations, that the effective administration of OVAT would be jeopardized if the activities and operations are performed in Ontatio, Canada will use best efforts to maximize employment oppertunties in Ontario for a corresponding number of Ontario employees affected by ths initiative, within departments or agencles of the federal government, Audit The Ontario Minister of Finance may designate a person to examine such books and records, excluding information which is protected by law, as may be relevant in orderto Permit such person to report in respect of the payments made to Ontario under the Canada-Oniario CITCA, | Appointment of Pane! | Canada anc Ontario agree to jeintly appoint a Panel or individuel, within 6 months following the implementation of the OVAT, to review and make recommendations on Possible improvements to the: — administrative and policy information avaliable on the OVAT; ~ revenue allocation framework, such as replacement by a system that ‘would provide the distribution of revenue to Ontario, and Harmonized Sales Tax provinces, based on actuel sales of goods and services in ‘such provinces; and ~ governance and organizational structures of the various committees Under the Canada-Cntarlo CITCA. Confidential — Canada-Ontario Memorandum of AgreementThe Panel or Individual will report back to the parties within one year of being appointed. Canada and Onterio agree te consider revising the Canada-Onterio CiTCA es ‘appropriate to reflect the recommendations of the Panel or Individual, Canada will consult with the existing Harmonized Sales Tax provinces. Ontario Retail Sales Tax Ontario wil be responsible for winding down its retail sales tax to the extent thet itis to be replaced by the OVAT. GRA/CBSA and Ontario will have the option of agreeing on the CRA/CBSA providing cliont services, collections, audit, rulings, objections and appeal activites In respect of the retail sales tax on an incremental, fee for service basis aver the transition period, tion diction Not Waived Neither Canada nor Ontario shall be deemed to have surrendered or abandoned any of Its powers, rights, privileges or authorities under the Censtitution Acts, 1867-1982, and ‘any amendments thereto, or otherwise, or to have impaired any such powers, rights, privileges, or authorities Confidential Pending a public announcement by Ontario that It Is Introducing an OVAT, Canada commis to taking all stops to embargo the existence of this MOA and to rot disclose in ‘any way feceral-provincial discussions relating to the development, negotiation end ‘execution of this MOA or to an OVAT. The Parties agree not to disolose this MOA. Unless mutually agreed to in writing of required by law, THIS MEMORANDUM OF AGREEMENT ENTERED INTO ON: Veuk 4 . 2008 Mervr_to , 2009 RIO The Honourable James M, Flaherty ‘The Honourable Dwight Duncan Minister of Financa Minister of Finance Cenada-Onterio Memorandum of Agreement 6Cole, E ee Goss, Jordan T FINEX From: Sent: Friday, March 27, 2000 9:09 AM To: ‘Armstiong, Glen E FIN:EX; FIN SGP Tax Policy Branch Subject: RE: globeandmail.com News Update ' created a folder in the Harmonization folder called Ontario Harm information. | saved the MOU there and a document with the relevant comments from the globe and mail-article. As more comes out from the Ontario move, we can add it here so that everyone can find it easily ifneeded. Jordan Goss Manager, Consumption Tex Tax Policy Branch Ministry of Finance Ph. (250) 387-7324 Fax (250} 368-7624 pee ths From: Armstrong, Glen & FIN:EX Sent: Friday, March 27, 2009 8:15 AM ‘To: FIN SCP Tax Policy Branch ‘Subject: FW: globeandmail.com Nev's Update ‘See comments ~ we stould start tracking them as they will help us remember al sues that may need to be addressed, even If Just on the communication front, in the event we ever nead them thanks From: Glen Armstrong s Sent Friday, March 27, 2009 6:10AM To: Armstrong, Glen E FIN:EX Subject: Fwd: globeandmail.com News Update Begin forwarded message: From: "globeandmail.com" Date: March 27, 2009 4:41:21 AM PDT (CA) To: — Subject: globeandmail.com News Update Reply-To: "globeandmail.com " © BP atovoendmaticom news update Home | National | World | Business | Sports | Opinions Arte | Technology | Travel| Health} Auto 1ESA EL a ET . ropsvonmg Ontarlo’s tax gamble a action to protect your Wh 3 racordl defic projected and a move to sales tax harmonization, Ontaros budget ton to pote signals a complete overhaul ofthe province's economic polley. 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We should think about any questions / clarifications we need from the feds re: new rules so we can provide an update next week, Istysee CheersCole, Elizabeth FIN:EX From: Cole, Elizabeth FIN-EX Sent: Monday, Mazch 30, 2009 6:18 PM Te Aumsirong, Glen E FIN:EX Subject: Cayo Adticle Fy, this is the article Case for harmonized sales tax in B.C. more compelling than ever Vancouver Sun Monday, March 30,2009 Page DOS By Don Cayo The case for B.C. to harmonize its sales tax with the OST has long been slong. Now itis even more compelling, : ‘The trigger is Ontario's sickbed conversion to sensible tax policy. Premier Delton McGuinty and his cabinet have, judging from the budget they tabled last week, looked at their ailing economy and recognized the need for strong medicine, They responded with both a reduction of corporate income tax — ftom 14 per cent to 10 per cent fo be phased in over the next four years and a decision to harmonize Ontario's provincial sales tax with the federal GST. Its Ontari6, not B.C., that is playing catch-up on business tax sates. It stands at 11 per cent here, and it's on its vway down ‘0 10 per cent by 2011, after a series of reductions from the 16.5-per-cent rate in effect when the current government took office. But on the PSI/GST front, the shoe is now tightly laced on the other foot. C.D, Howe Institute president Bill Rohson spoke for a lot of analysts when he called Ontario's harmonization plan overdue, badly needed, and timely. He sees it bolstering investment in Ontario in both the Jong and the short term, The exnet same analysis applies now, and always hes, to B.C, But there's an additional reason for our govemment to act -- to maintain our provinee's position vis-avis Ontario. When three of the Atlantic provinces harmonized their sales taxes with the GST more than a decade ago, it bolstered business investment there by, according to some estimates, as much as 17 per cent. Yet it's ucstionable how much of that investment could or would have come to B.C. if they hada't offered a better tax cavironment than ours ~ the Atlantic provinces have a lot of other cost disadvantages, including remoteness from markets and generally high taxes, But Ontario? Its a direct competitor for a lot of investment British Columbians would like to see come here. ‘And with its established manufacturing economy hurting so badly, is an aggressive competitor, We ean ill- afford to Ieave unchallenged this new major tex advantage it's creating for itself ‘The obvious appeal of « harmonized tax is the administration and compliance costs it will save, There'd be just one tax for businesses to collect, and one for government auditors to police. But a couple of fundamental differences mean much more than mere administrative savings. One of these contributes to its undeniable unpopularity with consumers, although I think this has more to do with politics and dislike of Brian Mulroney than with analysis. But the other means thet, when it comes to fostering growth and prosperity, it's a far better tax than the PST.‘The unpopular difference is that GST is more broadly based, applying to both goods and services, with few ‘exemptions, The “ax efficiency" difference is that GST taxes things of value only once, while PST ean tax the same component of a product over and over and over again, ‘Thus the PST can compound several times over by the time a consumer mekes a purchase, Every business peys ii on every input that goes into their product, and it must often be paid again and again at intermediate stages. With OST, any tax paid on inputs is refimded, and only the final product is subject to tax. Critics will be quick to point out that « harmonized tax will shift some tax burden from buisiness to consumers, ‘They're right. About a third of the tax currently raised by PST is paid on business inputs, and thet would be saved under a harmonized tax. But increase in total taxes paid dirccfly by consumers will be balanced, at least in pat, by savings on the cost of goods made from inputs that are taxed and re-taxed by the PST. And government can easily protect lower and middle-income consumers ftom any such tax increase, Ottawa already has a system of GST rebates that can be bolstered if the tax rate rises under harmonization. Also, Ontario is pledging to rebato to consumers virtuelly all of the $4.3 billion it will get from the federal government to assist with harmonization cost. That's a very lerge spoonful of sugar to help the medicine go down. And federal Finance Minister Jim Flaherty is s0 keen to get more provinees on board with harmonization that i's a safe bet B.C. could negotiate at east 2s sweet a deal,Cole, Elizabeth FIN:EX From: ‘Armstrong, Glen E FIN:EX Sent: ‘Thursday, April 2, 2009 10:19 AM To: Foy, Anne FIN:EX Ce: FIN'SCP Tax Policy Branch Subject: RE: What our taxes need is harmonization (The Vancouver Sun, (2 Apr 2609, Page A15} thanks From! Foy, Anne FIN:EX Sent: Thursday, Apri 2, 2009 10:18 AM To: Armstrong, Glen E FIN:EX ‘Subject: RE: What our taxes need is harmonization (The Vancouver Sun, 02 Apr 2009, Page A1S) These are the only quotes! have seen ~both from March 30" Minister Hansen says he's not sold ox the idea of merging the PST and GST — CHNL~ 8:00 AM~ March 30, 2009 1 Announcer: Itseems that our province will let Ontario be the guinea pig when it comes to merging the federal and provincial sales taxes. A wait and sce approach from B.C.'s Finance Minister. Reporter: Ontario will begin collecting provincial sales tax along with GST in the form of e new harmonized tax next year. B.C. Finance Minister Colin Hansen says he's still not sold on the idea. Colin Hansen: An HST would have the advantage of being a far more simple program to administe?, The ‘Administrative side would be muci less costly on small businesses in particular but the other side of itis thet it ‘would give us less flexibility as a province in terms of what a sales tex would or would not apply to, Reporter: Quebec and most Atlantic provinces already use an HST. rt enttnentinm Tees top ‘Minister Hanscn says lots of iniput is needed on the idea of merging the OST and PST — CHNL—7:00 AM ~ | March 30,2009 | Announcer: Should two become,one? A wait and see approach from British Columbis’s Finance Minister regarding the whole idea of merging the federal and provincial sales taxes, Reporter: B.C, Finance Minister Colin Hansen says his government has considered merging the provinciel sales tex with the GST but isn’t ready to move. Colin Hansen: You know we're certainly going ‘o follow with interest what Ontario is doing bnt I think as we 1will see from the debate in Ontario it’s clearly a controversial move and one that we would certainly want to gets lots of input on, Reporter: Ontario announced last week it would join Quebec and most Maritime provinees in collecting one provincial and federal combined sales tax. Hansen says the HST would be easier to administer but would-also take away B.C, control over what goods and services the tax would be applied on. ‘Anne Foy Tax Policy Analyst Ministry of Finano= From: Armstrong, Glen E FIN:EX Sent: Thursday, April 2, 2009 10:13 AM Tot FIN SCP Tax Policy Branch ‘Subjects FW: What our taxes need is hermonization (The Vancouver Sun, 02 Apr 2009, Page A15) Kesselman on harmonization in BC. IN? If so please share with me, Has anyone seen any quotes from our Minister or the Premier on harmoniz Thanks lenarmstrong@shaw.ca [mallto:glenarmstreng @shaw.ca] hurscay, April 2, 2009 6:37 AM To: Armstrong, Glen E FIN:EX ‘Subject: What our taxes need is harmonization (The Vancouver Sun, 02 Apr 2009, Page A1S), ics 2The Vancouver Sun 02 Apr 2009 It's no longer a matter of if,” but simply “ when.” Last week, Ontario, have a separate sales tax, and the largest of those provinces, tox with the GST effective....read more... one of the few remaining provinces to announced it will be merging ils provincial sales This email wes sent to you by a Times Colonist Di inital ser. This earvice contains copyrighted materia, rade marks ard other >roprctary information, Receipt ofthis email should not be iterpreted as gran: oF ay licences express or implied, tothe intellectual Property of CanWest MediaWorks Publications Ine ‘This email was sent to you by Newspape:Direct, Inc (200-1311 Vanier Place, Richmond, BC, Caneda V6V 211, phone 1 604 278 4604) on behalf of Timies Colonist Digital (© 2003-2008 Times Colonist Digital. All rights reserved, Tertn of Use | Privacy StatementArmstrong, Glen E FIN:EX From: Armstrong, Glen E FIN-EX Sent: Monday, April 6, 2009 10:29 AM To: Flanagan, Paul FIN‘EX Ce: Goss, Jorcan T FIN:EX; Cole, Elizabeth FIN:EX Subject: harmonization r es - = | 8 = — = Can you pull something together for discussion after my holiday? ThanksFlanagan, Paul FIN:EX = From: Cole, Elizabeth FIN:EX : ‘Wednesday, Apri 8, 2009 1:72 PM Armstrong, Glen E FIN-EX Flanagan, Paul FIN:EX Harmonization ADM Response Letter Subje (ve attached a draft of the response. The public quote from the Minister was Colin Hansen: You know we're certainly going to follow with intecest what Ontario is doing but I think as we will see from the debate in Ontario it's clearly @ controversial move and one that we would certainly want to gets lots of input on,Cole, Elizaboth FIN:EX —SSS——_s-=e—*""—_- << SS From: Cole, Elizabeth FIN:EX Sent: Wednesclay, Apri 15, 2009 12:47 PM To: ‘Armationg, Glen E FIN:EX Subject: Kesselman Harmonization Article What our taxes need is harmonization B.C, should follow Ontario's lead and merge its sales tax with the federal GST -- only do it hotter By Jon Kesselman, Special to the Sun April 2, 2009 exemptions for various goods and services that exist under its B.C. should not retain spe sales tax. It's no longer a matter of "i," but simply "when." Last week, Ontario, one of the few remaining provinces to have a separate sales tax, and the largest of those provinces, announced it will be merging its provincial sales tax with the GST effective mid-2010. The only question is when British Columbia will follow suit with a harmonized sales tax. Harmonizing provincial sales taxes with the federal GST is importent for several reasons. First, it sharply reduces businesses’ compliance burdens of having to deal simultaneously with two separate salos tax systems; Onterio businesses are projected to save $500 million annually from harmonization, a savings that will fow through to consumers. : Second, by extending the provincial sales tax to the wider range of goods and services covered by the GST, distortions in consumer choices are reduced. Consumers also find it simpler to have a single, combined tax rate to apply to their purchases and to have the same items taxable both federally and provincialy, Third, and most importantly, harmonization eliminates the ourden of the provincial sales tax on businesses, since they would obtain input tex credits for their payment of provincial tax just as they do now for their payment of GST on purchases. In B.C., this relief would be about 40 per cent of the total $5 billion sales tax collected annually. Eliminating the provincial sales tax burden on business would make B.C. products more competitive both within Canada and to export markets. It would algo provide a major impetus for increased investment, with associated Job creation. Sales tax harmonization has been estimated to provide as much incentive for investment in B.C, as would the complete abolition of provincial corporate income | tax. B.C. will be under increasing pressure to follow Ontario in harmonizing sales tax, since our businesses will be competing with those in Ontario and five other provinces that do not bear provincial sales tax burdens.But should B.C: simply follow the Ontario model for harmonization, or should our province pursue a different, better path? In four key areas, B.C. can and should'do considerably better than Ontario in how it fashions a sales tax harmonization agreement with the federal government. First, B.C. should not retain special exemptions for various goods and services that exist under its sales tax. In contrast, Ontario will maintain existing tax exemptions for books, children’s clothing and foolwear, children’s car seats, diapers and feminine hygiene products by'a so-called point-of-sale exemption system, Those products will bear only the five-per-cent federal GST but not the eight-per- cent Ontario portion of tax. B.C. similarly exempts most of the same products as Ontario as well as others, Far better to make those items taxadle both federally and provincially under a harmonized tax, and to offset any additional burden on low- and moderate-income households through enriched tax credits. This approach avoids both adverse distributional impacts and complexities in the operation of the tax for business and government. Second, B.C, should implement harmonization with tax-inclusive pricing. As with a few goods or services currently (such as gasoline and taxi fares), all posted prices would include the harmonized ‘tax. This approach would simplify matters for purchasers and also reduce adverse reactions from the extension of provincial sales tax to out-of-home meels, which was not an issue for Ontario because It already taxes restaurant and other meals over $4. Third, B.C. should seek a modification of the current GST treatment of new housing, which applies to sales with @ partial tax credit for lower-valued units. Given the high cost of the land component in urban B.C., the harmorized tax should be based on the structural value and exclude the land value. Otherwise, a $900,000 new home would face the full 12-per-cent harmonized B.C: tax rate, for a tax bill of $108,000 that would raise the total above $1 million. Finally, B.C. should avoid Ontario's siow-moving provision of input tax credits for larger businesses (with annual sales over $10 million) and financial institutions. They will be denied input tax credits for the first five years after harmonization starts and not obtain {ull credits for another three years. The largest economic benefit of harmonization was precisely the elimination of tax burdens on business, and Ontario is stifling this process for years. Aprincipal reason that B.C. can move much faster than Ontario in giving full input tax credits to all businesses is the diffeting fiscal settings. Ontario's recent budget announced a phased cut in its general corporate income tax rate from the current 14 per cent to 11 per cent in mid-2012. B.C.'s general corporate rate is already 11 per cent, so B.C, has additional fiscal leeway to move expeditiously and reap the full benefits of harmonization. | Ontario has shown that sales tax harmonization is fiscally, technically and politically feasible, B.C. should quickly follow suit and pursue an even better course. | von Kesselman is the Canada Research Chair in Public Finance with the graduate public policy program at Simon Fraser University,Cole, Elizabeth FIN:EX ae From: Gole, Elizabeth FIN:EX Sont: Tuesday, April 28, 2009 7:64 PM To: Flanagan, Paul FIN:EX Subject Discussion |abeth FIN:EX —~—"—["—'""“—— Cole, Elizabeth FIN:EX ‘Thursday, Apri 30, 2000 4:69 PM Flanagan, Paul FIN:EX QuestionGole, Elizaboth FIN:EX From: ‘Armstrong, Glen E FIN:EX Sent: Wednesday, May 6, 2008 &:11, AM To: Cele, Elizabeth FINE Subject: GST harmonization cheersArmstrong, Glen E FIN:EX From: Louise. Lovenian@fin.gc.ca Monday, Mey 11, 2008 10:13 AM ‘Armstrong, Glen & FIN:EX Lise.Potvin@fn.gc.ca RE: HST Question s13.846 —— Louise Levor Assistant Deputy Minister | Sous-minisire adjcint ‘Tex Policy Branch | Direction de la politique de Fimpdt Department of Finance Canada | Minisiére des Finances Canada Ottawa, Canada KIA 0G5 Louise. Levonlan@itingec,ca ‘Telephono | Téléphone 613-992-1630 / Facsimile | Télécopieur 613-996-0680 / Telelypewr'ter | Téleimprimeur 613-995- 1496 Government of Canada | Gouvernement du Canada BMD epyrentor nance minttre dos Fnancon Canadii From: Armstrong, Glen € FIN:EX [mailto:Glen.Armstrong@gov.be.ca] Sent: May 13, 2009 12:45 PM To: Levonian, Louise | Subject: HST Question Ont may change rate after 2 years, Am | correct in assuming a province could now start at a rate other than 8%? That is, that the legislation will be amended by July 4, 2010 to let a prov harmonize at a rate other than 8%? Thanks