At 4 p.m. today Ontario premier Dalton McGuinty is likely going to reveal his plans to merge the GST with the PST, creating the federally regulated harmonized sales tax (HST).
In an article I wrote today, I briefly mentioned that it will be a boon for businesses and potential trouble for consumers who will have to pay extra tax on things like food and diapers. But, it could have a devastating affect on the investment industry.
Yesterday, I spoke to Dean Paley, a senior planning specialist at Edward Jones, who pointed out that management expense ratios (MER), or the fees mutual fund companies charge people to manage their investments, will be taxed at a higher rate, since they aren’t subject to PST right now.
“We did a quick calculation on a retirement account of a person who makes a contribution of $5,000 a year over 25 years,” he told me. “If a fund currently has an MER of 2%, the impact of the HST would lower retirement value by $25,000 over 35 years.”
That’s a big difference, especially these days when investor sentiment is about as precarious as it has ever has been. And it’s not just Ontarians who could be affected by this. Because fund companies are based in Ontario, there’s a chance (it’s not for sure by any means) that people outside of the province will have to pay the higher tax rate if they’re purchasing a fund from any Toronto-based company.
The HST could also impact people who are in the market for a newly constructed home. That extra 8% might make the RRSP home withdrawal plan irrelevant. (The plan lets people who are buying or building a home take out up to $20,000 from their RRSP tax free, as long as they pay it back by a certain amount of time.)
Paley points out that this is only for newly constructed homes prices at $400,000 or above, but it could still hurt the housing market nonetheless.
“Anyone withdrawing from their RRSP under the homebuyers plan would have to withdraw more, and if they didn’t have enough to take out, it could knock them out of home buying market all together,” he explains.
With investors worried and homebuyers being more cautious anyway these days, the HST could spell more trouble from the economy, even though it should help out the manufacturing sector. Let’s hope the government takes some pro-active steps to ease the extra financial burden on not just the average Ontario, but the investing public as well.
Blogs & Comment
Ontario budget: HST could hinder investors
By Bryan Borzykowski
At 4 p.m. today Ontario premier Dalton McGuinty is likely going to reveal his plans to merge the GST with the PST, creating the federally regulated harmonized sales tax (HST).
In an article I wrote today, I briefly mentioned that it will be a boon for businesses and potential trouble for consumers who will have to pay extra tax on things like food and diapers. But, it could have a devastating affect on the investment industry.
Yesterday, I spoke to Dean Paley, a senior planning specialist at Edward Jones, who pointed out that management expense ratios (MER), or the fees mutual fund companies charge people to manage their investments, will be taxed at a higher rate, since they aren’t subject to PST right now.
“We did a quick calculation on a retirement account of a person who makes a contribution of $5,000 a year over 25 years,” he told me. “If a fund currently has an MER of 2%, the impact of the HST would lower retirement value by $25,000 over 35 years.”
That’s a big difference, especially these days when investor sentiment is about as precarious as it has ever has been. And it’s not just Ontarians who could be affected by this. Because fund companies are based in Ontario, there’s a chance (it’s not for sure by any means) that people outside of the province will have to pay the higher tax rate if they’re purchasing a fund from any Toronto-based company.
The HST could also impact people who are in the market for a newly constructed home. That extra 8% might make the RRSP home withdrawal plan irrelevant. (The plan lets people who are buying or building a home take out up to $20,000 from their RRSP tax free, as long as they pay it back by a certain amount of time.)
Paley points out that this is only for newly constructed homes prices at $400,000 or above, but it could still hurt the housing market nonetheless.
“Anyone withdrawing from their RRSP under the homebuyers plan would have to withdraw more, and if they didn’t have enough to take out, it could knock them out of home buying market all together,” he explains.
With investors worried and homebuyers being more cautious anyway these days, the HST could spell more trouble from the economy, even though it should help out the manufacturing sector. Let’s hope the government takes some pro-active steps to ease the extra financial burden on not just the average Ontario, but the investing public as well.