How the Ontario HST Will Impact You in 2010
The Ontario Government recently enacted legislation which will implement the much-dreaded HST Tax. This new tax will take effect on July 1, 2010.
The HST tax will effectively combine the Provincial Sales Tax of 8% percent with the Federal GST Tax of 5% percent, to create a new "harmonized" total tax of 13% percent. This new tax will be applicable to many real estate services which hitherto only had one or the other tax applied.
The HST will result in a 13% tax on new home construction, but my post today will concern those ancillary costs pertaining to the buying and selling of resale residential real estate properties in Ontario...
First, the good news....there is no HST tax payable on the sale of a resale home (residential). So the single largest dollar amount exchanged is not taxable under HST.If you're considering buying an older home, you should know about the Ontario Home Energy Savings Program and Home Energy Retrofit Program which offers rebates for certain home improvements.
However, under the harmonized sales tax (HST), home buyers and sellers will have to pay extra tax on a range of services associated with the real estate transaction: services such as legal fees, moving costs, real estate commissions and home inspection fees. Currently, consumers only pay the 5% Goods and Services Tax (GST) on these services.
In a nutshell, after July 1, 2010, if you are a seller, there will be a 13% percent tax payable on the real estate commission you pay - currently there is only the 5% percent GST payable on this fee. Your lawyer's fee will also be subject to the 13% percent HST, as will the cost of a Condominium Status Certificate.
HST New Home Rebate
The Federal government offers a GST/HST New Housing Rebate program which provides a rebate on part of the GST or the federal part of the HST paid on the construction or purchase of most newly constructed or substantially renovated houses used as a primary place of residence.
New Residential Properties
New homes sold for more than $400,000 will generally be subject to an increase in tax under the harmonized sales tax, with homes sold for more than $500,000 being subject to a significant increase in tax. Under the HST regime, the cost to build a new home will decrease, since builders will now be able to claim credits for all of the sales tax they pay on their inputs, however, the sale of these new homes will now be subject to an additional 8% tax. Ontario has proposed a rebate of 75% of the Ontario portion of the HST (i.e. 6%) for new homes sold for under $400,000.
This, combined with the decrease in the building costs, which Ontario assumes will be passed on to purchasers, means that new homes sold for under $400,000 should be effectively taxed at the same rate under the HST as they were under the RST regime. However, the Ontario rebate begins to be phased out at $400,000, and disappears entirely at $500,000. Thus, assuming again that the builder passes the 2% savings on to the purchaser, under the new regime new homes sold for more than $500,000 will effectively be subject to an additional tax of almost 6%.
Federal statistics from 2008 indicate that roughly 23% of new homes in Ontario sold for between $400,000 and $500,000, while roughly another 23% sold for over $500,000.
EXAMPLE 1: NEW HOME - $400,000
A new home with a price tag of $400,000 will benefit from an HST rebate that should operate in the same way as the current GST new housing rebate. If, as the government predicts, the builder passes on the 2% savings to the purchaser, the $400,000 home will sell for $392,000. HST will be payable on the new home at the rate of 13%, for a total of $50,960 of HST. The Ontario component of the HST on the home will be $31,360.
Under the proposed rebate program, the purchaser will receive a rebate of $23,520
(75% of $31,360) for the provincial component, and a GST new housing rebate of $3,654. Thus, the purchase price of the home which previously would have sold for $416,850 ($400,000 plus $20,000 of GST minus a GST rebate of $3,150) will be $415,786
($392,000 plus $50,960 of HST minus $23,520 of Ontario rebate, minus $3,654 for the GST new housing rebate). If we assume that builders will pass all of their cost savings to purchasers, a $400,000 home will actually cost slightly less under the new regime.
If you are a buyer, any Home Inspection you pay for will be subject to the 13% percent HST. And so will the cost of movers hired. In addition, the cost of the CMHC premium for "high-ratio" mortgages has traditionally been taxable for PST - this amount will now be taxable for the full 13% percent HST.
So one can see that, with the introduction of the HST, whether you are buying or selling a Resale Home in Ontario, costs will be going up.
A press release from the Ontario Real Estate Association earlier this year summarized some of these changes which will take place - the example that they used was for a resale house priced at $360,000, and it was determined that the HST would add over two thousand dollars in new taxes to closing costs.
Please note, these taxes are in addition to the Land Transfer Taxes which exist for both the Province and the City of Toronto. OREA calculated that, in total, the HST would add $313 million annually in new taxes to resale home transactions.
CURRENT TAXES PAID, VERSUS THE NEW COMBINED HST TAX PAYABLE,
oN A HYPOTHETICAL $360,000 REAL ESTATE TRANSACTION:
Current Tax | New Tax | Total HST Payable
Mortgage Insurance Premiums(1) $752.40 | $470.25(2) | $1222.65
Legal Costs $50.00 | $80.00 | $130.00
Real Estate Commission(3) $900.00 | $1,440.00 | $2,340.00
Home Inpection $20.00 | $32.00 | $52.00
For More Real Estate Real Estate Issues:
Contact Jimmy Singh, B.E.;S.R.E.S.; A.H.S.
Sales Rep. at Remax Escarpment Realty Inc. Brokerage
905-575-5478
www.hamiltonhomesinfo.ca
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