How the HST Will Impact You in 2010

The Ontario Government recently enacted legislation which will implement the much-dreaded 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.

The HST will result in a 13% tax on new home construction, but my post today will concern those ancillary costs pertaining to the buying and selling of resale residential real estate properties in Ontario… 

First, the good news….there is no HST tax payable on the sale of a resale home (residential). So the single largest dollar amount exchanged is not taxable under HST.

However, under the harmonized sales tax (HST), 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. One bit of good news – the cost of a Condominium Status Certificate will remain the same; while there will be HST at 13% instead of GST at 5%, there cannot be an increase in the legislated maximum total amount of $100.

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.

So one can see that, with the introduction of the HST, whether you are buying or selling a Resale Home in Ontario, costs will be going up.
A press release from the Ontario Real Estate Association earlier this year summarized some of these changes which will take place – the example that they used was for a resale house priced at $360,000, and it was determined that the HST would add over two thousand dollars in new taxes to closing costs. Please note, these taxes are in addition to the Land Transfer Taxes which exist for both the Province and the City of Toronto. OREA calculated that, in total, the HST would add $313 million annually in new taxes to resale home transactions.

CURRENT TAXES PAID, VERSUS THE NEW COMBINED HST TAX PAYABLE, ON A HYPOTHETICAL $360,000 REAL ESTATE TRANSACTION:

    ————————————————————————-
                        Table 1: HST and Resale Homes
    ————————————————————————-
                                      Current Tax                           HST Tax
    Taxable Service            Payable          New Taxes          Payable
    ————————————————————————-
    Mortgage Insurance
     Premiums(1)               $752.40        $470.25(2)        $1222.65
    ————————————————————————-
    Legal Costs                  $50.00            $80.00           $130.00
    ————————————————————————-
    Real Estate
     Fee/Commission          $720.00-        $1,152.00-      $1,872.00-
                                      $1,080.00       $1,728.00       $2,808.00(3)
    ————————————————————————-
    Home Inspection            $20.00            $32.00          $52.00
    ————————————————————————-
    Title Insurance               $24.00            $15.00          $39.00
    ————————————————————————-
    Total New Tax:                        

                                                              $1,749.25- $2,325.25
    ————————————————————————-

1) CMHC premium of 2.75% for mortgage with a 5% down payment on a
        $300,000+ home.
    (2) Consumers currently pay the 8% PST on mortgage insurance premiums.
    (3) Real estate commissions are negotiable or may be a flat fee.
        Estimated range of 4% to 6% used.
    (4) Ministry of Finance, Public Accounts, 2007/2008.
    (5) Altus Group, “Economic Impact of MLS(R) Home Sales,” June 12, 2007.

The HST Ontario Tax will add to the cost of buying and selling a resale home. Many market watchers are predicting a flurry of activity leading up to the July 1, 2010 implementation date, as buyers and sellers both try to avoid paying the tax.