|The Government of Ontario has indicated that it is exploring the possibility of harmonizing the Provincial Sales Tax (PST) with the federal Goods and Services Tax (GST). Sources inside the government and in the media have stated that the government could introduce a HST in the 2009 provincial budget.
What does this mean for the Ottawa Real Estate Market?!
“A harmonized sales tax would add yet another barrier to homeownership in the province of Ontario.” OREA President Pauline Aunger, March 2009
OREA’s concerns with respect to a HST centre on extra costs it will impose on new and resale housing.
Resale home transactions will attract significantly more tax under a HST system. Specifically, buyers and sellers will face an additional tax on REALTOR® commissions, lawyer fees, moving costs, home inspection fees, mortgage insurance premiums and title insurance.
Table 1: HST and Resale Homes
For a single detached house priced at $360,000 a HST could add $2037.25 in new taxes to closing costs (see Table 1). On average, a new HST would add $1731.00 in new taxes to Ontarians who buy or sell resale homes. In total, a HST will add $313 million annually in new taxes to resale home transactions.3
“These additional taxes could price some homebuyers, especially first-time homebuyers, right out of the market,” explained OREA President Pauline Aunger. “Now is not the time to be erecting barriers to homeownership. We need consumers to invest in housing to help get our economy going again.”
Ontario’s real estate industry is essential to the provincial economy. In 2008, real estate in Ontario accounted for $56.6 billion in sales, $6.01 billion in ancillary economic spending and $1.35 billion*4 in land transfer tax revenue to the provincial government. In addition, real estate employs 110,000 Ontarians directly and indirectly.*5
With respect to new housing , a study conducted by world’s largest real estate advisory group, Altus Clayton, indicated that a new HST would cause tax increases for new single detached homes ranging from $8,957 (Windsor) to $17,049 (Ottawa) outside the Greater Toronto Area (GTA), and from $24,566 (Mississauga) to a whopping $46,676 (Toronto) within the GTA.*6 According to the Building Industry Development Association (BILD), a HST on new homes would cost Ontario home buyers $2.4 billion annually.*7
Altogether, a HST on new and resale homes could cost consumers $2.7 billion annually in new taxes.
“I urge the Government of Ontario to avoid sales tax harmonization and work with REALTORS® to promote homeownership as a safe and secure investment.” OREA President Pauline Aunger, March 2009
OREA urges the Government of Ontario to avoid harmonizing the PST with the federal GST. Such an alteration to Ontario’s tax policy would costs consumers, particularly homebuyers, millions, ensuring that housing sector’s recovery from this economic downturn is unnecessary prolonged.
In the last decade, Ontario’s homeowners have faced a barrage of new costs. From municipal land transfer taxes to sky rocketing property taxes, homeowners are being pushed to the brink to accommodate increasing demands from government. A HST would represent yet another demand on Ontario’s already overtaxed homeowners.
REALTORS® are eager to work with the Government of Ontario to keep the costs associated with homeownership at affordable levels, encouraging homeownership as a safe and secure investment.
Revised: March 20, 2009
*1 CMHC premium of 2.75% for mortgage with a 5% down payment on a $300,000+ home. *2 5% sample used. Real estate commissions are negotiable. *3 A HST would add an average of $1731.00 in additional tax costs for resale home buyers – using 2008 MLS® average residential property selling price of $302,354. In 2008, 181,001 residential properties were sold in Ontario. *4 Ministry of Finance, Public Accounts, 2007/2008. *5 Altus Group, “Economic Impact of MLS® Home Sales,” June 12, 2007. *6 Altus Group, “New Housing Is Different: Implications for Sales Tax Harmonization on New Home Buyers in Ontario,” March 9, 2009 *7 BILD, “Harmonization would slam door on homebuyers: Report,” March 11, 2009