If you are thinking of buying or selling a condominium, you may want to do it before July 1, 2010. This is the date where the new Harmonized Sales Tax (HST) will come into effect. This new tax will blend the current GST of 5% and the Provincial Sales Tax of 8% into an harmonized total tax of 13%.
What does this mean for the real estate market? Well, if you are a buyer looking for your next home, this new harmonized sales tax will affect you only marginally. Services that were exempt of the provincial such as home inspection, lawyer’s fee, movers, etc will now be subject to the full 13% tax. On the bright side, the actual purchase price of a resale home will not be taxable.
For a seller however, the cost of selling his home just went up significantly. The new tax will be felt the most on real estate fees which previously were only taxed the GST and will now have the full HST applied to them. The current average real estate fee is 5% of the sale price of the home. There are a few extra thousands of dollars in tax on this item alone. The lawyer’s fees will also be subject to the 13% tax as will a Condominium Status Certificate.
Many professionals of the real estate industry believe that the HST will have a negative impact on the real estate market. Not only will it increase closing costs but it will also increase the cost of buying a new home in Ontario. The provincial government in an effort to alleviate the pressure this new tax will have on the new homes market segment has established a 6% tax credit on new properties sold at less than $400,000. But when you consider that in the Greater Toronto Area most new homes and condos are priced well above the $500,000 mark, this tax credit does not seem like much of an incentive.
The new HST could negatively impact the real estate market as a whole but the segment most likely to be bear the brunt of this new tax is the first-time home buyers. The additional costs may very well price a number of them right out of the market. On a property priced at $350,000, the additional cost for the buyer will be almost $2,000. It is estimate that the HST will add more than $300 million in new taxes on real estate transactions alone in 2010.
Critics believe that the HST will not only affect the real estate market but also the home renovation market. Any renovation project such as a new kitchen, bathroom, backyard fence, etc will now be taxed 13% instead of 5%. Many planned renovations could be put on hold as home owners may fear the additional costs in this uncertain economy.
What will be the true impact of the harmonized sales tax be on the Ontario real estate market? No one can say for sure. Many people may wake up on July 1st to a very nasty surprise. The cost of trading real estate will have become a lot more expensive overnight.