For those people in Ontario who are thinking about buying or selling property this year, the expected arrival of the Harmonized Sales Tax (HST) on July 1, 2010 has caused some concern. How will the HST affect your real estate transactions? And are there any positive sides to this legislation?
Image: Alan Cleaver / Flickr
What is it?
First, a primer: the HST is the planned combination of the current Federal goods and services sales tax (GST) with Ontario’s provincial sales tax (PST). Since the GST rate is 5% and the PST rate is 8%, the HST in Ontario will be 13%.
The Canadian federal government and the business community have been pushing the provinces to harmonize their sales taxes. Harmonized sales taxes cut paperwork, they reduce input costs, and some businesses can now claim a credit on the full HST. Outside of Ontario, an HST exists in three Atlantic provinces and in Quebec. BC also plans to implement an HST along with Ontario, but theirs might get derailed by political action.
Here’s a rundown of how it could affect you:
The Bad
- The HST adds tax to many purchases that previously weren’t taxed, or taxed as much. The added tax on gas is the one people will likely notice the most.
- In terms of real estate, the most noticeable cost increase will be the new taxes on any real estate services such as home inspections, moving costs and legal services.
- As well, if you buy a new home for over $400,000, you will be taxed HST on the part of the price above $400,000.
The Good
- The tax will not be levied on new homes under $400,000, and it is not levied on resales.
- To help lower income families cope, the lowest provincial income tax rate has also been dropped from 6.05% to 5.05%.
- If you run a small business, you can claim any HST paid on items that are needed to run the business. Previously, you could only claim the GST paid.
- Any family who makes less than $160,000 a year will get a refund of $1,000 and any individual who makes less than $80,000 a year will get a refund of $300.
In the long run, some experts say that the changes will have a largely neutral impact on the disposable income of Ontarians, and that it will significantly reduce business costs in the province. There have also been some studies that suggest the HST could eventually reduce the price consumers pay for products. Other experts argue the opposite. It will take time to see the full effects of the tax.
But whether you like it or not, the HST is here to stay for the foreseeable future. Remember to factor in HST costs when buying a new home, or estimating how much you will have to pay for the associated real estate services.
And if you really don’t want to pay the HST, there is one way to avoid it: buy a house before July 1, 2010.
Nelson Goulart
Broker of Record with Signature Service GMAC Real Estate
www.ssgmac.ca
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