In “The Dirt” column of the April 6/13, 2009 edition of Law Times, this writer waxed, if not eloquently then certainly vociferously, about Ontario’s proposed 13 per cent harmonized sales tax and its near ruinous implications for the new home construction industry and homebuyers in the province.
In that earlier Law Times article, I pointed out that the overall tax burden (i.e. pre-harmonization) currently imposed by GST and PST on the purchase of a typical single family detached home in the City of Toronto ranges between 5.3 per cent and 6.9 per cent of the median price of such a new home - a combined sales tax load just short of $50,000.
After the then-proposed sales tax harmonization, however, the total sales tax on the same City of Toronto single family detached home would soar to over $96,000 in HST, a whopping $46,000 increase in the cost of Toronto new home ownership!
The real culprit, of course, was not in the harmonization per se of the collection of these two levels of sales taxes. Most fiscal theorists agree that a co-ordinated and streamlined collection protocol is, at almost every level of analysis, preferable to the existing bifurcated provincial/federal remittance procedures.
However, as a byproduct of harmonization, some line-items that had historically been exempt from the 8 per cent provincial retail sales tax would now become subject to an umbrella 13 per cent harmonized sales tax instead - in effect, imposing a de facto 8 per cent provincial retail sales tax where before harmonization there was none.
For the most part, these new taxable line-items are services, most of which had been PST exempt prior to harmonization, but would become HST (including the built-in PST component thereof) eligible after harmonization.
The one notable non-service item that would also have been swept into the HST tax increase was new home construction (and this includes residential condominiums as well), especially on homes costing more than $400,000.
While new homes sold at less than $400,000 enjoy a total GST rebate (which rebate would also extend to the HST after harmonization), the March budget contemplated that newly built homes sold for more than $400,000 post-harmonization would not only attract GST (as they now do), but also the built-in PST component of the HST.
Well, wouldn’t you know it, a scant few months after the publication of the Law Times column, the provincial government abruptly and effectively cancelled the PST portion of the HST above $400,000 by extending the rebate for the PST portion of the HST to all new home purchases, regardless of sale price. The full rebate was also extended to all new residential rental housing as well.
The impact of the government about-face, which was publicly announced on June 19, 2009, is nothing short of astounding. On a $500,000 new house, condo, or rental unit anywhere in the province, the savings on the PST portion of the HST will be $24,000 per transaction. Based on ministry estimates as to volume, the extension of the rebate could cost Ontario coffers upwards of a quarter of a billion dollars per annum.
Of course, the rebating of the PST portion of the HST on new home sales will do nothing to eliminate the increased incidental costs payable in a typical real estate transaction as a result of sales tax harmonization.
Ontario’s real estate buyers (whether buying housing stock or industrial, commercial, or investment properties, and whether buying new or resale real estate) are all going to have to pay a 13 per cent HST on legal fees, surveyors’ fees, appraisal and home inspection fees, title insurance premiums, and real estate commissions, all of which have historically been exempt from PST.
All real estate deals will still suffer indirectly because of these increased ancillary costs associated with adding a de facto PST to all real estate related services. The decision by the government will come as a particular relief to Toronto homebuyers.
Toronto has the simultaneous distinction of being the municipality with: (i) the most new homes and condos being sold above the $400,000 price point (estimates vary from 40 to 50 per cent of all Toronto new home construction to be above this price point); and (ii) the highest land transfer tax rates in the province.
With the implementation by the City of Toronto of its own municipal land transfer tax last year, had harmonization gone ahead as originally planned, the total tax load payable by a typical Toronto new home or condo buyer after July 1, 2010 (the proposed harmonization implementation date) would have been a whopping 17 per cent (13 per cent in HST and 4 per cent in combined land transfer taxes).
Alas, the ministry’s announcement with respect to the extended HST rebate for new homes did not expressly credit “The Dirt” as the causa causans of this tax relief measure, but that does not stop the author from taking at least some of the credit for the government’s policy epiphany.
Of course, some might argue that relentless lobbying efforts by industry associations like the building industry and land development association, and development law mavens like Harry Herskowitz of DelZotto Zorzi LLP both before and after “The Dirt” column may have contributed (perhaps significantly) to the change in government direction, but precision attribution is not productive at this stage.
Suffice it to say that, from the perspective of both homebuyers and home builders in Ontario, the amended HST policy is now far better than the March budget version thereof that it replaces.
In that earlier Law Times article, I pointed out that the overall tax burden (i.e. pre-harmonization) currently imposed by GST and PST on the purchase of a typical single family detached home in the City of Toronto ranges between 5.3 per cent and 6.9 per cent of the median price of such a new home - a combined sales tax load just short of $50,000.
After the then-proposed sales tax harmonization, however, the total sales tax on the same City of Toronto single family detached home would soar to over $96,000 in HST, a whopping $46,000 increase in the cost of Toronto new home ownership!
The real culprit, of course, was not in the harmonization per se of the collection of these two levels of sales taxes. Most fiscal theorists agree that a co-ordinated and streamlined collection protocol is, at almost every level of analysis, preferable to the existing bifurcated provincial/federal remittance procedures.
However, as a byproduct of harmonization, some line-items that had historically been exempt from the 8 per cent provincial retail sales tax would now become subject to an umbrella 13 per cent harmonized sales tax instead - in effect, imposing a de facto 8 per cent provincial retail sales tax where before harmonization there was none.
For the most part, these new taxable line-items are services, most of which had been PST exempt prior to harmonization, but would become HST (including the built-in PST component thereof) eligible after harmonization.
The one notable non-service item that would also have been swept into the HST tax increase was new home construction (and this includes residential condominiums as well), especially on homes costing more than $400,000.
While new homes sold at less than $400,000 enjoy a total GST rebate (which rebate would also extend to the HST after harmonization), the March budget contemplated that newly built homes sold for more than $400,000 post-harmonization would not only attract GST (as they now do), but also the built-in PST component of the HST.
Well, wouldn’t you know it, a scant few months after the publication of the Law Times column, the provincial government abruptly and effectively cancelled the PST portion of the HST above $400,000 by extending the rebate for the PST portion of the HST to all new home purchases, regardless of sale price. The full rebate was also extended to all new residential rental housing as well.
The impact of the government about-face, which was publicly announced on June 19, 2009, is nothing short of astounding. On a $500,000 new house, condo, or rental unit anywhere in the province, the savings on the PST portion of the HST will be $24,000 per transaction. Based on ministry estimates as to volume, the extension of the rebate could cost Ontario coffers upwards of a quarter of a billion dollars per annum.
Of course, the rebating of the PST portion of the HST on new home sales will do nothing to eliminate the increased incidental costs payable in a typical real estate transaction as a result of sales tax harmonization.
Ontario’s real estate buyers (whether buying housing stock or industrial, commercial, or investment properties, and whether buying new or resale real estate) are all going to have to pay a 13 per cent HST on legal fees, surveyors’ fees, appraisal and home inspection fees, title insurance premiums, and real estate commissions, all of which have historically been exempt from PST.
All real estate deals will still suffer indirectly because of these increased ancillary costs associated with adding a de facto PST to all real estate related services. The decision by the government will come as a particular relief to Toronto homebuyers.
Toronto has the simultaneous distinction of being the municipality with: (i) the most new homes and condos being sold above the $400,000 price point (estimates vary from 40 to 50 per cent of all Toronto new home construction to be above this price point); and (ii) the highest land transfer tax rates in the province.
With the implementation by the City of Toronto of its own municipal land transfer tax last year, had harmonization gone ahead as originally planned, the total tax load payable by a typical Toronto new home or condo buyer after July 1, 2010 (the proposed harmonization implementation date) would have been a whopping 17 per cent (13 per cent in HST and 4 per cent in combined land transfer taxes).
Alas, the ministry’s announcement with respect to the extended HST rebate for new homes did not expressly credit “The Dirt” as the causa causans of this tax relief measure, but that does not stop the author from taking at least some of the credit for the government’s policy epiphany.
Of course, some might argue that relentless lobbying efforts by industry associations like the building industry and land development association, and development law mavens like Harry Herskowitz of DelZotto Zorzi LLP both before and after “The Dirt” column may have contributed (perhaps significantly) to the change in government direction, but precision attribution is not productive at this stage.
Suffice it to say that, from the perspective of both homebuyers and home builders in Ontario, the amended HST policy is now far better than the March budget version thereof that it replaces.
