How will HST affect your clients?
The Ontario Government recently enacted legislation which will implement the HST Tax. This new tax will take effect on July 1, 2010. The HST tax will effectively combine the Provincial Sales Tax of 8% percent with the Federal GST Tax of 5% percent, to create a new "harmonized" total tax of 13% percent. This new tax will be applicable to many real estate services which hitherto only had one or the other tax applied.
- there is no HST tax payable on the sale of a resale home (residential).
- home buyers and sellers will have to pay extra tax on a range of services associated with the real estate transaction: services such as legal fees, moving costs, real estate commissions and home inspection fees. Currently, consumers only pay the 5% Goods and Services Tax (GST) on these services.
In a nutshell, after July 1, 2010, if you are a seller, there will be a 13% percent tax payable on the real estate commission you pay - currently there is only the 5% percent GST payable on this fee. Your lawyer's fee will also be subject to the 13% percent HST, as will the cost of a Condominium Status Certificate.
If you are a buyer, any Home Inspection you pay for will be subject to the 13% percent HST. And so will the cost of movers hired. In addition, the cost of the CMHC premium for "high-ratio" mortgages has traditionally been taxable for PST - this amount will now be taxable for the full 13% percent HST.
As legal fees, home inspection fees, mortgage insurance premiums, and real estate commissions become subject to additional taxation under the new Harmonized Sales Tax regime, housing affordability will suffer.
Current owners in urban areas will be impacted as well; condo fees are expected to increase 5-7% as management fees, concierge services and utilities will be taxed under HST.
Renters will be hit as landlords pass on the higher costs soon to be associated with electricity, gas, cable, maintenance, property management, and other services.
The Federation of Rental-Housing Providers of Ontario (FRPO) estimates an increase of 2.5% to 3.0% in residential rents as a result of the HST.
The Cost for "New" Housing (not applicable to resale):
Under the new proposal, all price ranges would receive a 75 percent rebate on the provincial portion (75percent of 8percent) on the first $400,000. Up to a maximum rebate of $24,000.
New homes under $400,000 would not be subject to this additional new tax.
The new HST tax will not apply to sales of new homes where ownership or possession is transferred before July 1st, 2010.
Please note that the above made statements do not constitute legal advice.