Durham Region Real Estate Blog

I’ve known the ins and outs on HST and resale homes since the government released the news about the dreaded tax. No HST on resale homes and then a whole can of worms for new home sales. Well, that’s not true as there are rules and exceptions to the rules, just like everything else. Though I’ve gone over this topic in the past, and much of that information will be reitterated here, home buyers still have questions so it’s worth another look.

First let me say, “HST does not apply to resale homes”.

Revenue Minister Sophia Aggelonitis and Toronto Real Estate Board President, Bill Johnston, have released a video explaining to prospective buyers the facts about the HST and the housing market. The video highlights the fact that there is no HST on the purchase price of resale homes. Sales tax did not apply to the purchase price of resale homes under the previous PST, and it does not apply under the HST.

For new housing, additional tax only applies to the portion of the price above $400,000. The Ontario Enhanced New Housing Rebate means that buyers of new homes receive a rebate of up to $24,000 regardless of the price of the new home. Buyers of new homes priced up to $400,000 (about three-quarters of new homes built in Ontario) on average pay no more – and possibly even less – tax than under the previous PST, where sales tax was hidden in the price. I wonder if anyone has seen a reduction in the sale price of their new home due to the HST!

If you’ve read or listened to the news at all, you know that the Harmonized Sales Tax (HST) is on it’s way here in Ontario. The provincial government has announced that it intends to combine the eight percent Provincial sales Tax with the five percent federal Good and Services Tax, creating a thirteen percent HST.

The HST is not yet in effect. The provincial government has indicated that it intends to bring the HST into effect beginning on July 1, 2010, however there are transition rules in place. The HST will not apply on the purchase price of a resale home, but it will apply to services such as moving costs, legal fees, home inspection fees and Realtor® commissions. The HST will apply to the purchase price of newly constructed home however, the Province is proposing a rebate so that new homes across all price ranges would receive a seventy-five percent rebate of the provincial portion of the single sales tax on the first $400,000. For new homes under $400,000, this would mean, on average, no additional tax amount compared to the current system.

So it is important to remember that sales of resale residential housing and long-term rentals or residential housing will be exempt for HST purposes, but you will pay HST on the other services related to the sale or purchase of a house (real estate commissions, lawyer fees, moving services, home inspections, etc.)

If you have read my past blogs, you know that I am opposed to the new Harmonized Sales Tax (HST), and I did try to get as many people as possible to write all the politicians they could, in order to have the new tax defeated.  This didn’t work and it looks like we are going to have the new tax, like it or not. So let’s embrace the new tax!

The Ontario provincial government has announced that it intends to combine the eight percent Provincial Sales Tax wit the five percent federal Goods and Services Tax, creating a thirteen percent HST. The tax is not yet in effect, but will start on July 1, 2010. While the new tax will not apply to the purchase price of a re-sale home, it will apply to services such as moving costs, legal fees, home inspection fees and Realtor® commissions.

There are transitional rules that will apply to HST and Realtor® commissions. The HST will general apply to services, expressed as a percentage, that the services are performed on or after July 1, 2010. However, if 90% or more of the services are performed before July 1, 2010, the HST will not apply.

For example, if I am selling your home and list it on June 1, 2010, receive an offer on June 15, 2010 and the transaction closes on July 2, 2010 then, since more than 90% of my services were performed before July 1, 2010, only GST will apply to the commission at that time.

In another example, let’s say that my services to sell your home are performed from May 1, 2010 to July 31, 2010 with the sale of your home closing on July 31, 201o. Since 2/3 of my services were performed from May 1, 2010 to June 30, 2010, only 1/3 of my services were performed after the July 1, 2010 HST start date. You would be charged GST on 2/3 of the commission and HST on 1/3 of the commission.

Sure, the new rules are a little confusing, but we’ll figure it out. You should keep in mind that while my topic covers how HST will affect home sales, it will also affect all business owners. Keep in mind that if you have a GST number and are able to get GST rebates, you may want to hold off on large purchases that are currently subject to 8% PST. If you buy the item after the HST comes into effect, you can apply for the HST rebate.

So I know that the media is inundating you with news about the market, or lack there of, but I need to put in my two cents worth.

In the Durham Region there were 694 sales in March, 2009. This is down from the 824 sales in March of 2008, but still up respectably from the 507 houses sold in February, 2009. Prices for the month stayed on par with February, 2009, at an average of $263,970. This average is down 4.3% over March, 2008.

Buyers are definitely taking advantage of the increased affordability the current market has to offer. And with the HST set to come into effect on July 1, 2010, buyers are smart to take advantage now. Of course, the interest rates on mortgages is definitely a bonus too. I just saw an update for a 5 year, fixed plan for 3.95%!

So the sun is shining today and it looks like we are seeing some shining stars in the real estate market too!

It’s been all over the news, so I’m sure you’ve heard that the McGuinty government announced its intention to harmonize the goods and services tax with the provincial sales tax. As a result of this change, provincial sales tax will now be levied on legal fees, appraisals, real estate commissions, home inspection fees and other services related to real estate transactions. I don’t know how the government can think that this is a good idea. Calling it what it is, this tax grab will severly hurt the resale housing market and reduce affordability for Ontarians trying to buy a home.

I want to encourage all of you to write to your MPP to express your outrage at these new taxes and to tell them how badly they will hurt the real estate market in your area. You can also go to www.orea.com/consumercfa and email your MPP from there. It only takes about 30 seconds and the letter is all made out for you!