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Should financial assurance include HST?

Financial assurance is designed to ensure that taxpayer doesn’t have to pay the bill, if an industrial operation becomes insolvent, abandoning an environmental mess. Most businesses provide financial assurance by posting cash or letter of credit. If the government ever needs to call on the financial assurance, they use the money to hire a private contractor to do the necessary work. The government doesn’t pay HST, and any HST paid by the contractor to its suppliers will flow through as an input tax credit. Why, then, should those posting financial assurance be required to tie up the extra 15%? It doesn’t make any obvious sense; Approvals Branch is thinking about the issue.

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