REIN put out a press release on Monday regarding BC’s decision to move from a split 5/7% GST/PST to a harmonized 13% HST. The big concern is now there are several items which were not subject to HST will now become taxable. This includes real estate.
“What this means is that the new sales tax on a $500,000 home would be $60,000 compared to $20,000 for a home selling for $400,000…the average value of a two storey home in Vancouver is $632,900!”, says Campbell.
The full press release follows below and there are recordings of several radio interviews Don did on the thread on myREINspace.
HST Threatens Housing Recovery
For Immediate Release
Vancouver / July 27th – The Real Estate Investment Network (REIN™), a Division of Cutting Edge Research Inc. is Canada’s leading real estate research, education, and consulting organization.
On July 1, 2010 the provincial governments will be instituting the Harmonized Sales Tax (HST) to replace the separate PST and GST. Although this is deemed by many to be a boon for the provincial economy and most business owners, it will have a severe impact on the real estate industry. “The Lower Mainland is already the least affordable housing market in Canada and now, with the additional costs of the HST added on top, home ownership becomes out of reach for even more” says Don R., Campbell, President of the Real Estate Investment Network and author of the best-selling books Real Estate Investing in Canada 2.0 and 97 Tips For Real Estate Investing.
Good for “Most” Businesses but Real Estate Investors and Renters will Lose
The HST will put BC on more of a level playing field with Alberta and is anticipated to attract new investment into the province, lead to higher productivity and higher wages. Businesses that do not pay GST at all due to rebates (input credits), but who pay PST, will now have both taxes rebated – a boon for most businesses owners. “However, the real estate industry will not benefit from the HST. Taxes will increase significantly on the purchases of new homes, all real estate transaction fees, renovations, maintenance and utilities. This cost will inevitably be passed on to people looking to rent a home,” says Campbell.The Impact Will also be felt on Rents
Although rent itself is GST exempt, utilities and other associated costs that were previously PST exempt will now be taxed an additional 7% through the HST. This will include: gas heat, electricity, cable TV, maintenance contracts, property management services, maintenance contracts, and renovation contracts for example. This cost will be passed on to the consumer, in this case ending with the renter.The Federation of Rental-Housing Providers of Ontario (FRPO) estimates that the HST, also beginning in Ontario on July 1, 2010, will increase residential rents by 2.5 to 3.0% ($270 to $320 per year on average up to about $1000 a year for higher end rentals).
Taxes on Most New Home Prices Will Increase Exponentially
Revenue Canada will continue to exempt previously owned homes from tax upon their resale. However, new home purchases are subject to HST but may qualify for an HST rebate. In Ontario, the government announced plans to completely exempt new homes valued at less than $400,000. The government will also provide rebates on homes valued between $400,000 and $500,000. The proposed Ontario rebate if applied in the same way in BC, will mean the tax discrepancy for a home selling for $400,000 and one selling for $500,000 would be 7% higher;“What this means is that the new sales tax on a $500,000 home would be $60,000 compared to $20,000 for a home selling for $400,000…the average value of a two storey home in Vancouver is $632,900!”, says Campbell.
Impact on Real Estate Services
HST will now apply to previous services that were exempt from provincial taxes adding an additional 7% to all real estate transactions. Merging the taxes will add more than $2,000 to the cost of a real estate transaction, hurting the resale home market and prolonging the housing industry’s recovery from the economic doldrums according to calculations made by the Ontario Real Estate Association. For example, 12% HST in BC will be applied to a realtor’s commission and will come right out of the pocket of the seller – and this will mean an additional $1,000 paid to a realtor on a $14,000 commission. HST will also apply to many of the other services involved in the real estate transaction, including: accounting fees, appraisal fees, referrals, surveys, renovations and legal assistance.About the Real Estate Investment Network™
Founded in 1993, the Real Estate Investment Network (REIN™) has grown over the years to become Canada’s leading real estate research and education organization. REIN™ does not sell or market real estate to its members or the general public, but instead conducts objective and unbiased research, analysis and investor education. For further information on REIN™, visitwww.reincanada.com.
It will be interesting to see how this plays out. Right now it’s proposed to implement the tax in June of 2010. This gives plenty of time for the provincial government to re-evaluate certain components of the tax. The Home Builders Association and restaurant associations are up in arms over the proposal, and both groups have a LOT of political pull.
If the tax is implemented, obviously there will be a significant effect on new home sales. What I’m most interested is to see how the demand for re-sales will be effected.
Only time will tell, but it’s just another reason that Alberta is a more attractive place to invest.
I think that now that we are just beginning to have enough confidence to buy start buying again, that this is a bad time to raise taxes… The people should have been consulted on this one.
Thanks Jordy, I actually didn’t’ even really consider the HST changes as a potential impact pushing people to buy sooner. My Realtor here said yesterday that she’s had a lot of calls from people getting off the fence and wanting to buy now. Have you seen the same?
Excellent article. As an update, the BC HST Housing rebate was increased in November 2009 from a maximum of $20,000 to $26,250 on purchasers of new homes up to $525,000.
Guess this is a dead issue now.
I don’t know, the affordability hasn’t improved out there. That was the central point.