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If You Don’t Buy Now, You’ll Hate Yourself Later

The proposed Harmonized Sales Tax could cost you thousands of Dollars.

The McGuinty government’s 2009 budget could have severe repercussions for home buyers and sellers The plan is to combine the  provincial sales tax  (8%) with the goods and services tax (5%.) The  harmonized sales tax of 13% would start on July 1st 2010.

Senior economists at the Bank of Montreal outlined several  negative side-effects, from holding back first-time buyers to damaging the provincial economy.

GST but not PST is currently paid on newly-built houses in Ontario. Under the proposed plan people who buy a house for less than $400,000 would receive a rebate to offset the new tax, those who spend less than $500,000 would receive a partial rebate, and anyone buying a house costing more than $500,000 would pay the full 13%. The difference between a house priced just under $400,000 and a house priced at $500,000 would be an extra $37,000 in tax.

Possible consequences:

• Builders would prefer to build under the $400,000 mark and might reduce the quality and size as a result.
• Falling demand for new build houses.
• Buyers might have to pay separately for upgrades, landscaping and standard finishes.
• Builders could focus on the very high-end, where taxes may be less of a deterrent to buyers. That means middle-income families could be struck harder.
• Buyers are likely to veer towards resale houses. For a $500,000 house, the tax differential would amount to a hefty $65,000. This would in turn raise the price of resale homes.
• Fewer investors would want to buy condos in the price brackets hit by the tax so fewer units would be built, leading to upward pressure on rents.

One benefit of the HST is that it would reduce builders costs by about 2 per cent, which is the amount they now pay for the embedded PST on building supplies.

Douglas Porter and Sal Guatieri  at the BMO think that one answer is to reduce the HST on new homes from the proposed 13 per cent to 7 per cent (equivalent to the current 5 per cent GST and the 2 per cent embedded PST currently levied on building materials). Additionally the provincial portion of the tax on new homes priced above $400,000 could be graduated so that the tax applies only to the portion of the price above $400,000.

Overall home buyers would see an increase in tax burdens and growing families could face a shrinking supply of move-up, mid-priced homes. An estimated 30,000 construction jobs could be lost and Ontario’s annual gross domestic product could drop by about 0.5 per cent. Just what we need when we hope the economy is emerging from a recession.

Several new build projects are underway or planned for Wasaga Beach and Collingwood. The number of homes selling for over $400,000 and $500,000 are growing even in the traditionally less expensive Wasaga Beach. Now may be the time to move rather than adopting a wait and see attitude; don’t be hit by the effects of the  tax hike in a years time.

This entry was posted on Tuesday, May 12th, 2009 at 1:51 pm and is filed under Financing, The World Of Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

1. Mike Harmon said at May 12th, 2009 at 2:15 pm

   I must say this is a great article i enjoyed reading it keep the good work

2. What Everybody Ought To Know About Buying A New Home Or Resale In Wasaga Beach Or Collingwood | Wasaga Beach Real Estate-Wasaga Beach Homes For Sale-Wasaga Beach News said at June 29th, 2009 at 7:30 pm

   [...] Oh No Taxes.GST will apply and from next year the dreaded Harmonized Tax. [...]

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