CBC fails TAX 101

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.




2 thoughts on “CBC fails TAX 101

  1. Sorry to nitpick, but given that the article is about poor understanding of the tax system, it doesn’t help to include confusion. Nobody gets an ITC on things they sell:
    “That means when the bill is reconciled, the home owner is paying the HST on the power the home draws and does not get an input tax credit on the electricity the home sells back to the grid.”

    Actually, I don’t think becoming a registrant would (or should) help him with the monthly bill. His business operation is generating electricity and selling the surplus. The electricity consumed at night isn’t a business input, it is personal consumption.

    He should be able to get a refund for HST paid on the solar panels by registering. If I’m following this through correctly, though, he would then end up doing what the headline suggests: have to pay HST on the fair market value of the electricity he produces and consumes himself.

  2. I thought about this some more, and re-read the CBC article. It is possible that it’s accurate, but we’d need more information about the details of his arrangement.

    It is possible that due to either technical or regulatory reasons, he must sell ALL of the power produced to the grid, and then buy back what he uses, leading to paying HST on all of his home’s consumption. I have no way of knowing if this is the case, but can definitely imagine a reasonable universe where it would be.

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