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The Provincial government announced it will harmonize the existing 8% sales tax with the 5% goods and service tax in July 2010, creating a single 13% harmonized sales tax (HST) in an effort to create new jobs and provide permanent tax relief for the people of Ontario.
While the new tax may have its advantages for business, it appears consumers will carry the brunt of the tax burden as it applies to goods and services that are currently exempt.
What does this mean for you?
According to the OREA, the HST will add $263 million annually in new taxes to Ontario resale home transactions.
The tax will be applicable to services such as legal fees, commissions, and home inspections which are currently exempt. The OREA estimates it will translate into an additional $1,449 in closing costs for the resale purchase of a single, detached house priced at $302,354.
How does this affect buying a new home?
Currently, new homes face a 5% GST but no PST. There is also a 1.8 percentage point GST rebate for houses costing less than $350,000. In July 2010, HST will be applied to all new homes. In an effort to limit the additional HST cost to Retail Sales Tax equivalent, an HST rebate (for as much as a six percentage point) is available for homes valued at $400,000 or less (attracting a $24,000 rebate on the $400,000 maximum). Anything above $400,000 will get the full 13% tax. For example, a $500,000 home would generate a tax bill of $65,000, a 160% increase from current levels. And a $1-million home nets a $130,000 tax bill, up from the current $50,000.
What can you do?
The best advice I can give is to plan ahead. If you are currently considering buying a resale or new home, now’s the time to act to get ahead of the changes. If you’re not quite ready yet, know what to expect and make sure to budget for the extra costs.