The Harmonized Sales Tax’s Effect on Real Estate

On July 1^st, the Ontario government implemented the HST as part of a tax plan designed to strengthen the economy. While lots of discussion surrounds the changes – let’s cut to the chase. Here’s what people buying or selling a home need to know.

About 93 per cent of all homes sold in Ontario are not subject to an additional tax amount under the HST.

It’s important to note, the HST is not charged on resale homes.

In addition it is not charged on:

• home insurance
• mortgage interest costs

HST is charged on:

• real estate commissions
• legal fees
• new homes

(The full list of what changes and what doesn’t change is available on the website (23 languages), PDF format and for free download as a mobile application. )

New Homes Rebate

Regardless of the price of new homes purchased as primary residences,, buyers may be entitled to a rebate in respect of the provincial part of the HST of up to $24,000, ensuring that buyers of new homes priced up to $400,000 will, on average, pay no more – or possibly even less – tax than under the PST system. The effect of the rebate is that homes valued over $400,000 will be subject to the 8 per cent provincial part of the HST on the amount above $400,000.

New Rental Housing Rebate

New rental housing, including residential investment properties, receive a similar rebate to the new homes reimbursement. This rebate also supports affordable rental housing in Ontario.

Other Tax Credits and Incentives

• Providing up to $1,000 for families (including single parents), or up to $300 for single people, in Ontario Sales Tax Transition Benefits.
• Creating the new Ontario Sales Tax Credit that gives each member of your family up to $260 a year.
• Increasing the energy and property tax relief provided to low- to middle-income people by 70 per cent.
• Delivering an additional $500 a year to help senior homeowners pay their property taxes.

And to leave your readers with some context of how real estate agents are viewing the market, check out http://www.torontosun.com/newhomesandcondos/2010/08/06/14946611.html

I have also provided some additional resources below and if you or any of readers have any questions, just ask

Rachael.MOR@ontario.ca

Some Helpful Links:

Ontario HST Website

Canada Revenue Agency

Helping Homebuyers and the Housing Industry with an Enhanced New Housing Rebate and a New Rental Housing Rebate

Frequently Asked Questions

Builder Disclosure Requirements

Builders of New Housing

New Housing Rebate

Owner-built Homes, Mobile Homes and Floating Homes in Ontario

Purchasers of New Housing in Ontario

Stated Price Net of GST/HST New Housing Rebates

Property Tax Credit

Ongoing HST Revisions

Ontario Government Proposes Measures for New Housing

The McGuinty government is proposing measures that would build on the comprehensive tax package announced in the 2009 Ontario Budget:

• Enhanced new housing rebate - The province would enhance the new housing rebate so that new homes across all price ranges would receive a 75 per cent rebate of the provincial portion of the single sales tax on the first $400,000. For new homes under $400,000, this would mean, on average, no additional tax amount compared to the current system.
  

• New rental housing rebate - Similar to the enhanced new housing rebate, the province is proposing a rebate for new residential rental properties. This proposed rebate would support affordable rental housing across Ontario.

• Transitional rules - The province is also proposing transitional rules for new housing. Generally, as part of the transitional rules, sales of new homes under written agreements of purchase and sale entered into on or before June 18, 2009 would not be subject to the provincial portion of the single sales tax, even if both ownership and possession are transferred on or after July 1, 2010. The tax would also not apply to sales of new homes under written agreements of purchase and sale entered into after June 18, 2009 where ownership or possession is transferred before July 1, 2010.

Addition Tax details of the revised Harmonized Sales Tax

David Pylyp; OK So the Ontario Government will rebate 75% of the new Tax (HST) on Units or house acquired prior to July 1, 2010, What about the 1st time buyer's Rebate, Is that still available? Are the rebates across the board for 1st time and repeat buyers?

The Province has in place a land transfer tax refund for first-time home buyers. Information about it is available here: http://www.rev.gov.on.ca/english/refund/newhome/index.html

The enhanced housing rebate announced on Friday is only for newly constructed homes as these homes would be subject to the single sales tax when it comes into effect on July 1, 2010. Re-sale homes are not currently subject to PST and would also not be subject to the single sales tax.

Harmonized Sales Tax will wound Housing Industry

Ontario's impending tax harmonization scheme spells disaster for those building, buying or selling homes.

The recently announced harmonization of the GST and PST in Ontario is about to wreak havoc on the housing industry, one of the pillars of that province's economy. It is a textbook case of poor government policy that will distort the province's housing market over the long term, with a particularly devastating impact on the building industry.

Consider the following: When tax harmonization in Ontario takes effect in July, 2010, someone buying a new condo in Toronto costing $500,000 -- the current median price in that city -- will pay approximately $40,000 in additional taxes. If the same buyer considers moving up to a $600,000 purchase, the tax goes up another $17,000, for a total additional tax burden of close to $60,000. Total sales taxes on a new home purchase will exceed the 13% tax on an imported luxury car and the 15% sin tax levied on a glass of wine or pint of beer purchased at the local watering hole. But will new home purchasers be willing to pay these sky-high sales tax increases and, if not, what are the consequences?

Hardest hit will be people living in the Greater Toronto Area (GTA). The provincial government indicates that 75% of new home purchases in Ontario fall below the $400,000 threshold. But in the GTA, 54% of new home purchases last year were predominately high-rise condominiums, and in Toronto, where the majority of new condominiums are being built, the average asking price is currently just over $500,000.

For the consumer, there is one way to dodge the tax: Buy on the resale market where PST and GST do not apply. For a $600,000 resale purchase, the tax savings would total $78,000. But the sheer magnitude of the difference in sales tax between new and resale product will distort housing markets in the long run.

Bottom line: the harmonized tax regime will curtail new housing supply in key sectors of the new homes market and will redirect demand to the resale market. In the long run, this will put upward pressure on house prices.

David Pylyp; Click on the title to read the entire piece, well written and researched by jmckellar@schulich.yorku.ca - James McKellar is professor of real estate and infrastructure at the Schulich School of Business, York University Hat Tip to the National Post.

How do you feel about the harmonized tax? Do you agree that it will push the sale of smaller home units? Will there be a mini boom of 1,150 square foot houses like built in the early 70's?

Online Petitions are available for the anti tax movement, but unfortunately No One Mobilized during the Miller Tax

Your comments are invited.

Perfect Timing for Harmonized Tax Implementation

Well, it seems to be official. The Ontario Government has decided to harmonize the Provincial and Federal Sales Taxes.  July 01st, 2010 the tax Kicks in.

Stephen  Dupuis, president of the Building Industry and Land Development Association, pointed out that buyers of new homes would be hit particularly hard if Ontario harmonized the PST with the federal GST. See previous Posting 

On a $350,000 new home, he wrote that the consumer would have to pay an additional $17,920. But it's not just buyers of new homes who would be affected by a merging of the two taxes. Buyers and sellers of resale homes would also be hurt because a harmonized tax would apply to many services that are currently exempt from PST – including legal fees, real estate agent commission, renovation services, land survey reports, home inspections, landscaping and house cleaning services. Also affected would be the cost of labour for installations or repairs, including additions, kitchen renovations, driveways, roads, fences, swimming pools and patios. 

Assuming no change in the provincial sales tax rates, the seller of a $350,000 resale home would get hit with an additional $1,400 in tax on a real estate agent's 5 per cent commission, plus a new 8 per cent provincial tax on moving expenses, legal fees, accounting and bookkeeping fees, renovations, painting and other services which are currently exempt.

Ken Gaudet from the Canadian Taxpayers Federation is quoted as saying that according to their understanding, the Provincial Sales Tax will now permit the (additional) taxing of Gasoline.

So what will happen to buyers looking at a $ 350,000 property, condo or house, with their downpayment of 5%. Their current downpayment is $17,500.00.  As the tax would be applied to all construction, and CMHC fees, lawyers, title Insurance and including movers, Buyers could see a tax bill payable on their Mortgage Insurance fee Increase from  $865 to $1405. This brings the total closing costs on a resale home in the City of Toronto (combined with the Miller Bite) to a total of $8,870.00. (Ontario LTT $3725  Toronto Land Tax $2,200.) *Assumes that LTT rebates may not be available.

Now your total downpayment requirement is really $26,300.00

Let's get you purchased or sold prior to the implementation of the tax to make your dollars go further.Take advantage of the low interest rates!

Your comments are always invited.