The Harmonized Sales Tax (HST) in Quebec has increased the tax on a broker’s operating expenses by 10%, which could potentially lead to staff layoffs in brokerages across the province, the province’s broker association warns.
Quebec agreed with the federal government in March 2012 to implement the HST, which merges the federal government’s Good and Services Tax (GST) with the Quebec Sales Tax (QST).
As part of the deal, Revenu Canada announced at the beginning of the year that brokers could no longer claim an exemption on taxes that brokers collect from their clients on insurance products. Prior to the HST, brokers collected from their clients a 9% tax for goods and 5% tax on automobile insurance products, and then claimed this amount back from the government at tax time.
“So, with tax harmonization, we cannot recoup the tax anymore on our expenses,” said Catherine Mainguy, the outgoing president of Quebec’s broker association, the Regroupement des cabinets de courtage d’assurance du Québec (RCCAQ). “So basically, all of our operating expenses go up by 10% because that’s effectively what the sales tax is here.”
That’s roughly $12 million in additional tax the government will be collecting from brokers across the province. There are approximately between 7,000 and 8,000 brokers in the province.
That tax money will have to come from somewhere, Mainguy said. In order to keep their profit margins the same, the extra taxes on operating costs are likely to be made up by reducing payroll costs. “At one point, it means jobs all over the province,” she said. “So we’re really fighting this.”
It actually could have been worse. The RCCAQ managed to convince the government to move away from its intention to keep a Compensation Tax worth an additional 1.5% to 2% on brokerage salaries. Before the HST, the Compensation Tax was charged to brokers to make up the difference between what the brokers collected from their clients in taxes, and the amount the government gave back to brokers at tax time.
The Compensation Tax will be dropped in 2014, but the government thus far has stuck to its guns on keeping the tax on operating expenses, which applies only to financial institutions. “No other industry is negatively affected by tax harmonization, except us,” Mainguy said, adding that HST was not supposed to introduce any additional tax.
The RCCAQ has several proposals before the Quebec government, each of which would exempt brokers from the tax on operating expenses.
