Harmonized Ontario tax confirmed; magazines to take the hit

Magazines publishing in Ontario will, as expected, have to charge a 13% harmonized tax on top of subscriptions starting in just over a year. It was confirmed in yesterday's Ontario budget that the 8% provincial sales tax will be merged with the 5% GST starting July 1, 2010.

It is, in effect, an 8% increase in taxation, since the 50% of magazines in Ontario have not charged provincial sales tax on subscriptions (although it has been charged on single copies sold at retail). It is a tax that magazines are expected to ultimately pass along to their subscribers (though that will be difficult to do quickly). It is not possible to predict at the moment what the impact will be on subscription sales when subscribers see their out-of-pocket cost.

The harmonized sales tax will also have to be applied, tracked and input tax credits applied for on a host of other magazine input costs, such as printing and postage, which had previously been PST-exempt.

There are some bland assurances that the greater efficiency of the HST and publishers' ability to claim back input credits even on things where they previously couldn't, will neutralize the impact. But the one area where this won't have any effect is on subscriptions.

There is also the suggestion that this levels the playing field with magazines published elsewhere in the country which have paid HST for some time. But it can't be forgotten that half of all Canadian magazines circulate in and are published in Ontario.

Some goods are exempt, including books. But magazines and newspapers are taking the hit.

It will be interesting to hear from individual publishers as they do their back of the envelope calculations. What will be the likely effect this new tax measure will have on their businesses and their readership base which is, after all, the foundation of those businesses?