PST regime puts B.C. at a disadvantage

Tony Wilson
Boughton Law
Although I could speak today about the underfunding of B.C.’s courts, legal aid, and a recently released Angus Reid public opinion poll suggesting that British Columbians are dissatisfied with the justice system, this is, after all, supposed to be a light, entertaining, and fluffy column about legal practice on the west coast, and there are some topics that don’t lend themselves to my swordplay.

So if someone asked me, “Hey, what’s going on in the Vancouver legal scene?” I’d have to talk about our return to the provincial sales tax after almost three years of HST.

B.C. ditched the HST and returned to a combined GST+ PST jurisdiction on April 1. This arose out of a 2011 referendum that, in turn, arose out of the one of the most mishandled and mismanaged public policy initiatives in modern Canadian history. And appreciate that I’m trying to keep this light and fluffy.

Premier Gordon Campbell and the B.C. Liberals initiated the HST shortly after an election where the tax wasn’t debated or raised. It applied at 12 per cent to the sales of goods (because it merged the GST and the PST), but it also applied to all the services the GST applied to, and which the PST didn’t, such as restaurant meals, dance lessons, and any other service imaginable.

Don’t get me wrong. I’m a huge supporter of the GST and the HST. I’ve written extensively in favour of the benefits of the tax as well as the political machinations surrounding the HST debate. Over the course of six columns in the Globe and Mail, I was called a criminal, a shyster, a weasel, a liberal party hack, a paid vomiter of Howe Street and Bay Street, an embarrassment, smelly, wretched, greedy, inhuman, and a self-styled villainous galactic overlord. However, despite one veiled death threat that I’m rather proud of, my columns were getting over 85,000 hits each time I wrote, so it showed how vehement the opposition to HST was.

But politics and economics make strange bedfellows and the HST debate became politicized; the facts getting in the way. In some ways, it was like a season of Game of Thrones, where all the honourable characters meet painful and bloody deaths; normally with a sword.

The charge against the HST was led by former premier Bill Vander Zalm, a man who resigned in disgrace in 1991 due to conflict of interest scandal over the sale of his Fantasy Gardens theme park, and who was recently found by the B.C. Supreme Court to have defamed former Saskatchewan justice, former B.C. deputy attorney general, and former conflict of interest commissioner Ted Hughes in an autobiography. Oh, and did I say Hughes was awarded the Order of Canada?

Vander Zalm, however, was actually believed. His anti-HST campaign led to the decision to hold a province wide referendum, then-premier Gordon Campbell falling on his own sword and resigning, and the eventual defeat of the HST. But it’s no secret Vander Zalm used bafflegab, disinformation, and voodoo economics to defeat the tax, (going as far as to say to pensioners that HST was a step towards world government, with Brussels setting our tax rates!). If you disagree with this, watch Chris Thomson’s YouTube video.

But it wasn’t just Vander Zalm and his problem with facts, tax policy, and math. To heap scorn where scorn was due, why on earth would the B.C. Liberals have agreed to hold a referendum on the HST? Who wins a referendum on a tax increase anyway? And why would they have agreed to hold it under an act where the tax required 50 per cent of votes cast plus one to remain in place, as opposed to using another statute, called the Recall and Initiative Act, under which the government may well have prevailed?. These questions must await my book on the topic, but I await a publisher.

Rather than explaining the tax better all over the province, correcting Vander Zalm’s math, reducing it to 10 per cent right away, or reminding younger voters that Vander Zalm was the author of the property purchase tax that added thousands of dollars to the purchase price of their homes, the government lost control of the message and distanced itself from the debate as if the HST were an alcoholic uncle that no -one wanted to acknowledge because he was drunk at family gatherings.

Arguably, the government “played to lose” and lost. Claim democracy triumphed all you want, but B.C. more or less shot itself in the foot in the process of defeating the HST.

What’s surprising is that if you look at the numbers, the pro-HST side only needed 76,136 more votes from the anti-HST side, and it would have hit 50 per cent plus one. The spread between the no and yes sides was only 152,271 votes.

So where are we now?  Well, B.C. is one of the only Canadian jurisdictions to have had a retail sales tax apply to legal services; something brought in by an NDP government in the early 1990s. So after converting to the HST three years ago and applying 12- per- cent HST to all our legal bills, we must now charge five per cent GST and seven per cent PST just like we did before. But our business clients, who used to get an input tax credit on the full 12 per cent, now only get it on the five per cent GST, even though they still pay 12 per cent tax on their legal bills. There are no ITCs in our PST regime. It’s a cascading, regressive tax that puts tax upon tax upon tax.

But get this. Accountants no longer have to charge the extra seven-per-cent tax they charged on all accounting services within the HST. Yet tax lawyers must charge seven per cent PST, making tax advice from accountants less expensive than tax advice from lawyers, and giving lawyers a seven-per-cent disadvantage for some of the same work accountants do.

As well, B.C.’s PST also gives lawyers in other provinces a competitive advantage over B.C. lawyers because in HST provinces, clients receive an ITC based on the entire amount of the HST. The client receives no ITC on the seven-per-cent PST portion of the account as it would under HST.

This means if a client chooses one of my competitors to do B.C.-related legal work pursuant to mobility rights, that client would pay 13 per cent Ontario HST on the account and receive an ITC for the 13 per cent. But the same client would only receive an ITC for the five per cent GST component of my B.C. account. This means I could lose a client to my colleagues in Ontario and other provinces unless I take a seven-per cent-haircut.

There is also a disincentive for clients in HST provinces using B.C. lawyers to perform commercial work that relates to B.C. (even if B.C. lawyers are within the same national firm, working from the Vancouver office), if there is no ITC available on seven per cent of the bill.

And last, because the HST and the PST rules differ in terms of where the tax is applied, its conceivable that a client in an HST jurisdiction that does business in B.C. will be subject to HST (where an ITC can be claimed) and B.C. PST (where it cannot). And that’s just legal fees. Maybe clients will move their businesses to jurisdictions where there is no PST (Alberta) or where they at least get an ITC on their HST (Ontario).

Whether you want to blame Gordon Campbell for bringing the tax in so poorly and mismanaging its implementation, or Bill Vander Zalm for doing to the HST what he did to Ted Hughes, it’s what we in la-la land are now dealing with.

You have to wonder what we’re smoking out here sometimes.

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