Last spring, we saw the Provincial Liberals throwing Kleenex out the windows of their Happy Bus named "Majority", as they announced the introduction of the Harmonized Sales Tax, effective July 2010. Of course they were aware that their humble subjects were living through the worse financial meltdown since the Great Depression, but when McGinty shook his "8 Ball" and asked for direction, it indicated that "anytime you have a majority is a good time!".
What does the HST mean for the average real estate transaction?
The residential resale homes will be exempt, just as they are with the GST, however, it's the services involved with the transaction that will be subject to a hefty 8 percent Provincial sales tax component of the new HST. Industry experts claim that it will cost the average home buyer an additional $2,000.00 http://www.newswire.ca/en/releases/archive/March2009/26/c4519.html
Now, considering that the Province already collects a sneaky little tax called the Land Transfer Tax each and every time a property is sold in the Province, this new sales tax on the services involved with the sale should be a pretty bitter pill to swallow for most Ontarians, especially if that Ontarian is also a Torontonian! The residents of that beautiful City were already held hostage by their Mayor when he introduced the Municipal Land Transfer Tax back in 2007/2008. Check out the nifty calculator supplied by our friends at the Toronto Real Estate Board (TREB) http://www.torontorealestateboard.com/LTT_splash/ltt_calculator.htm
Just for fun, lets tally up the taxes generated on the average real estate transaction. A house in Hamilton purchased for 250,000.00 and a house in Toronto, purchased for 500,000.00
Hamilton- $250,000.00 HST on Commission of 5% $ 12,500.00 @ 13% = $1,625.00
HST on Legal Fee's Buyer $800.00 @ 13% = 104.00
HST on Legal Fee's Seller $700.00 @ 13% = 91.00
HST on Home Inspections, Appraisals etc $700 @ 13%= 91.00
Land Transfer tax 1% of 250,000 less $275.00 (2500 - 275)= 2,225.00
TOTAL TAX- Province 3,401.00
Federal 735.00
GRAND TOTAL..... 4,136.00 OUCH
Now to the Torontonians.....yes, it's much more expensive to live there!
$500,000 house sale- City of Toronto Municipal Land Transfer Tax $5,725.00
Provincial Land Transfer Tax 6,475.00
Commissions 5% 25,000 @ 13% 3,250.00
Legal Fee's Buyer/Seller $2,000 @ 13% 260.00
Inspection/Appraisal Etc.... $800 @ 13% 104.00
Total City 5,725.00
Total Province 8,699.00
Total Federal 1,390.00
GRAND TOTAL 15,814.00 SUPER OUCH!!!!!
When you think about it, thats an awful lot of after tax dollars going to pay more non deductible taxes each and every time a humble subject wants to move! Matter of fact, in 2008-2009, the Province of Ontario reported Land Transfer Tax Revenues of $1,013,000,000 dollars, down $358 Million from 2007-2008. http://www.fin.gov.on.ca/en/budget/paccts/2009/09_cfs.html#sc1
So, lets go to the Federal Government. Harper is very happy that the Ontario Liberals have put this plan into action. But, at the same time, Jim Flaherty, Canada's Minister of Finance has been hinting that the drones of the land are getting a tad bit too comfortable with the low interest rates enjoyed for several years. He's hinting at changes to minimum down payment and amortization periods because he doesn't want to see people get into financial trouble when they buy a house and the interest rates begin to ebb upwards. Wow, a politician actually feeling for the little people, waiving the "I shall save them from themselves" banner.
I know no one asked me, but I'm going to toss my "2010 prediction hat" into the ring here.
Prediction # 1...we're going to see a buoyant real estate market for the next 5 months, with first time home buyers racing to get mortgages locked in at nice low rates....plus save a thousand or two on the HST.
Prediction # 2...the buoyant real estate market is going to increase retail sales as people buy furniture, appliances and everything else that Home Depot has to offer.
Prediction # 3...Mr. Flaherty will put in the first major increase in interest rates in early March, 2010...just to stimulate those first time home buyers a bit more! People will be locking into mortgages right and left.
Prediction # 4...New home starts will post a gain for the first quarter...simply as a result of stimulus money..but we'll all think that the recession is truly over!!! Yahooooooo!!!
Prediction # 5...The home frenzy will increase in May and early June, as Mr. Flaherty announces that minimum down payments are increased from 5% to 8% affective July 1, 2010.
Prediction # 6...July 1st, 2010...the HST is ushered in...prime has gone up to 4%....amortizations are reduced to 30 years...and the market grinds to a hault...and a super recession may loom over the Country while all of the Politicians are playing golf over the summer. http://www.upi.com/Real-Estate/2010/01/05/Mortgage-Rate-Prospects-Stir-Fears-of-Re-Recession/5041262702687/
Home ownership should be affordable to everyone and the Governments of the day should realize how important the Housing Sector is to the economy. Are either the Federal or Provincial Governments acting in a responsible fashion right now, or are they they like children playing with matches? Time will tell...and here's hoping that my predictions are the farthest things from the truth!