As many of my loyal readers know, I regularly get a bit apoplectic with the general lack of basic tax knowledge in this country, particularly by journalists. I mean, if you are going to report on tax news, you should take a soupcon of time to ensure that you are edumacated about the topic upon which you are supposedly proffering opinion and fact about. But when it comes to topics that touch on economics and tax, apparently this is a tall order, especially for the CBC.
A few weeks ago this gem came across my twitter feed. The headline reads “P.E.I. man wants to know why he pays HST on electricity he generates himself.” Well, I know without even reading it that he does not. I know if I looked at his bill that he pays HST on the electricity he consumes. That is all, nothing to see here. But gosh forbid we take a moment to think logically about this situation and the tax system.
Alright, since the journalist, one Kerry Campbell won’t do it, I’ll do it for you.
In this situation, the consumer has a “net zero” home. The important point is net. Some times the home draws power, some times the home provides power back to the system. I imagine, the home mostly draws electricity from the grid at night and does at an agreed rate. The home owner then has to pay for that electricity and that amount is subject to HST.
Now comes the second part. During the day, the home is generating surplus electricity so the home sells the surplus back to the grid. So the home gets a credit for that. But wait, the home owner is likely a small supplier, without a HST number, so, GASP [clutches pearls] does not charge the electrical provider HST.
When the bill is reconciled, the home owner is paying the HST on the power the home draws. The home owner does not get its own magical tax charge on the electricity the home sells back to the grid to offset the HST already paid. The homeowner is not, as the CBC put in the headline, paying HST on the electricity the home generates itself.
This situation is no different than for any other business activity or any other consumer. We pay tax on things we consume. When we sell things, if we are a small supplier, we don’t have to charge the tax, but there are some advantages to being a registrant, one being that you can claim input tax credits. Overall, there is nothing to see here, or at least, as a tax person, there is nothing to see here…now where are my pearls.
Update: a very smart tax accountant informed me that they have done the HST analysis for their clients and determined it was more beneficial to not register for the HST as most of the expenses are exempt supplies which don’t provide an input tax credit (thereby reducing the GST/HST paid–in this case the HST paid on the electricity consumed which is what is the concern of the homeowner). He did though inform me that my pearls could be considered part of the uniform of a tax consultant and there for a reasonable allowance for them could be claimed; 72/168 of the cost based on average working hours for the week.