Sunday, August 22, 2010

HST hit is serious for many investors

Reading through comments at various online sites, one finds occasional statements supporting the BC Liberal's surprise imposition of HST. Those not commissioned by our big business friends, I suspect, come from the $4,000 a month media monitors at the Public Affairs Bureau in Victoria. It still surprises me when comments downplay the new tax as unlikely to make a difference to individuals.

Personally, I think any revenue neutral tax measure that annually saves business $1.9 billion is going to cost consumers precisely $1.9 billion, which means over $1,860 for an average BC couple and their 2.4 children.

Here is one of those little talked of issues related to HST.  Under rules laid down by BC Liberals, HST will apply more broadly than the old provincial sales tax. Investment management fees will be subject to HST and British Columbia has never before taxed those services. For example, mutual fund investors pay annual fees for management of financial assets.

By the way, in Canada, we pay the highest fund management fees in the world because laws protect the financial industry from low-cost competition and allow high domestic prices to be maintained. One survey showed Canada's average asset-weighted expense ratio for equity funds was 2.56%, compared to 1.11% in the USA. So, don't hold your breath waiting for lower fees because investment managers save a few dollars provincial tax on bathroom supplies.

Suppose you are 45 years old and deposit $200,000 in an RRSP retirement account. At 2.56%, the annual fund management fee would be $5,120 plus $614 HST. Since you paid GST under the old system, the new BC share of tax is $358. Ignoring increases from fund appreciation, the $358 would be payable in each of 20 years by the time you retired, or $7,168.

Nice, eh?
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1 comment:

  1. As a senior, I have found my RRSP's, were a bad investment. I have no tax write offs. If I draw any out, they take a percentage off the top. The amount I with draw, then gets added to my income, and I am taxed again. So the government, gets most of the money. Corruption is very expensive for the tax payer. This recession, has put too many citizens, out of jobs. There are not enough people working, to pay for the corruption. Hence, the taxing frenzy, and the rabid, selling of our provinces, assets and natural resources. Campbell has cost our mill workers, 30.000 job losses, in his time in office. Our jobs were given to China, as well as our raw logs. Every time a mill closes in BC, another mill opens in China.



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