The original post was made early on the morning of the budget. . .obviously a bit late to protest. Have changed the title and left parts of it as it explains how it effects real estate. Some details of the budget at the end of this article.
Yesterday, Premier McGuinty combined the five percent federal Goods and Services Tax (GST) with the eight per cent Provincial Sales Tax (PST), to create a single Harmonized Sales Tax (HST).
On the surface, this may seem like not a big deal, but the key point to remember is that these two taxes are not levied in the same way, so many things that are currently only subject to one tax, would, under this scheme, start paying both taxes.
Unfortunately, home buyers and sellers would be one of the hardest hit groups under this proposal, which is why the real estate industry is strongly opposed to it.
Currently, the purchase price of re-sale homes is not subject to PST or GST (unlike new housing, which is subject to GST), and it is not expected that the proposed HST would change this, but it would add significant tax to the many services that home buyers and sellers rely on, such as moving costs, legal fees, home inspection fees, mortgage insurance premiums, title insurance, and Realtor commissions.
For example, for an average Peterborough home priced at approximately $220,000, a HST could add over $1,000 in upfront taxes on closing costs. This is a substantial amount to home buyers at a time when they can least afford it.
The prospects are even worse for new housing, which is currently subject to a reduced GST of about 3.2 per cent, instead of the usual 5 per cent, on the purchase price.
The housing industry is critical to the economy. Hundreds of thousands of jobs depend on it, both directly and indirectly. For example, a recent study conducted for the Canadian Real Estate Association, found that every re-sale housing transaction results in over $33,000 in spin-off spending on things like renovations, appliances and furniture. By adding significant costs to home buying, a HST risks this type of spending, and runs completely contrary to the Province’s efforts on the economy.
March Budget will take effect 1 July 2010
New homes under $400,000.00 will not pay both taxes. . .sounds better than it is. . .you pay the whole amount of 13% and then are reimbursed 75% of the provincial portion up to $500,000. Still more than now. Now we pay 3.5% (reduced GST) Under the new system home buyers would pay 7% (5% GST and 2%PST)
To help people and families adjust to the new single sales tax, the government would provide permanent tax relief and direct payments:
* 93 per cent of Ontario taxpayers would pay less personal income tax
* Eligible families with an income below $160,000 would receive three payments from the provincial government, totaling $1,000
* Eligible individuals with an income of less than $80,000 would receive three payments totaling $300
o The first payment would arrive in June 2010, the second in December 2010 and the third in June 2011
* The provincial government would also provide:
o Permanent tax relief for people with low and middle incomes through one of the most generous refundable sales tax credits in Canada. This new credit would provide up to $260 per year for each adult and child
o A 16.5 per cent cut in the tax rate on the first $36,848 of taxable income earned by all Ontarians.
The tax, which is being implemented with the assistance of the federal government, will include items not previously covered by the sales tax, such as home heating costs, hydro, water, gasoline, postage, fast food, haircuts, and internet services as well as all the real estate related services mentioned above (moving costs, legal fees, home inspection fees, mortgage insurance premiums, title insurance, and Realtor commissions). Some exemptions include books and childrens clothing and shoes, diapers, and car seats.
Jill Fyffe
Sutton Group All Pro
705-742-7382
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