HST and Resale Homes
Fig.1
Taxable Service | Current Tax Payable | New Taxes | HST Tax Payable |
Mortgage Insurance Premiums *(1) | $752.40 *(2) | $470.25 | $1222.65 |
Legal Costs | $50.00 | $80.00 | $130.00 |
Real Estate Fee 4% - 6% *(3) | $720.00-$1,080.00 | $1,152.00-$1,728.00 | $1,872.00-$2,808.00 |
Home Inspection | $20.00 | $32.00 | $52.00 |
Title Insurance | $24.00 | $15.00 | $39.00 |
| |
Total New Tax: $1,749.25 to $2,325.25
Ontario's real estate industry is essential to the provincial economy. In 2008, real estate in Ontario accounted for $56.6 billion in sales, $6.01 billion in ancillary economic spending and $1.35 billion *(4) in land transfer tax revenue to the provincial government. In addition, real estate employs 110,000 Ontarians directly and indirectly. *(5)
*(1) | CMHC premium of 2.75% for mortgage with a 5% down payment on a $360,000 home. |
*(2) | Consumers currently pay the 8% PST on mortgage insurance premiums. The new tax in this instance is 5% G.S.T. |
*(3) | Real estate commissions are negotiable or may be a flat fee. Estimated range of 4% to 6% used. |
*(4) | Ministry of Finance, Public Accounts, 2007/2008. |
*(5) | Altus Group, "Economic Impact of MLS(R) Home Sales," June 12, 2007. |
New Home Sales
The Budget proposes to eliminate Ontario's retail sales tax and to adopt a federally administered, single value-added sales tax ("harmonized tax") beginning July 1, 2010. The harmonized tax will be comprised of the federal goods and services tax ("GST") of 5% and the former provincial retail sales tax of 8%, for a combined rate of 13%. New home sales will be subjected to the new H.S.T addition to the increased closing costs as shown in Fig. 1.
Ministry of Finance website: ‘....On average, new homes under $400,000 would not be subject to an additional tax burden, the government is proposing a new housing rebate. Homebuyers would be able to claim a rebate of part of the provincial portion of the tax for new homes priced up to $500,000. The rebate for new primary residences under $400,000 would be 75 per cent of the provincial portion of the tax (or six per cent of the purchase price), with the rebate amount reduced for homes priced between $400,000 and $500,000'.
Exemptions or partial rebates of the provincial portion of the HST will be available on new home purchases up to $500,000. This means that, while the HST is unlikely to have much impact on the plans of first-time homebuyers taking advantage of low mortgage rates to purchase starter homes, it will definitely have a negative effect on the higher-priced homes category.
Closing costs on all homes, including realtor fees, legal services and home inspections, will climb because they are not currently subject to provincial sales taxes. The Toronto Real Estate Board estimates that will add $2,037 to the purchase of a $360,000 home. It is estimated the harmonized tax will raise $313-million for the province in taxes on the closing costs of home sales alone
To soften the blow to consumers, the government is handing out up to $1,000 in three payments beginning June 2010 to every family with an income below $160,000. A single earner making less than $80,000 a year will receive three cheques worth $300.
OREA Call for Action - Harmonization of Sales Tax
Yesterday the McGuinty government announced its intention to harmonize the goods and services tax with the provincial sales tax.
As a result of this change, provincial sales tax will now be levied on legal fees, appraisals, real estate commissions, home inspection fees and other services related to a real estate transaction.
OREA believes that this tax grab will severely hurt the resale housing market and reduce affordability for Ontarians trying to buy a home.
We encourage all OREA members to write their MPP to express their outrage at these new taxes and to tell them how badly they will hurt the real estate market in your area. Please visit www.orea.com/realtorcfa to send your letter.
OREA is also encouraging REALTORS® to send the following link to their client lists so that they can also email their MPPS on this issue here: www.orea.com/consumercfa.
