Lots of people have been stopping me in the hallways of the Globe to talk about the Ontario government budget and the impact that the new harmonized sales tax will have on buying and selling houses.
The budget confirms the plan by Dalton McGuinty's government to harmonize the 8-per-cent provincial sales tax with the 5-per-cent federal goods and services tax.
The new blended sales tax will add a tax burden to many household goods that are currently not subject to provincial sales tax, including the purchase of new homes above $400,000 and the closing costs on the sale of existing houses.
Just yesterday my colleague Clare Jordan was thinking about putting her smallish house on the market and looking around for something bigger now that she's found out how much ground two-year-old boys can cover.
Today she's not so sure.
In any already struggling market, will her house be that much harder to sell with more taxes piled on? And will anything she buys become less affordable?
Because Jordan would be selling an existing house, the tax hit would apply only to the closing costs, including the realtor fees that she and the purchaser pay. Then there are the legal services, title insurance and home inspections that the purchaser typically forks out for. These costs are not currently subject to provincial sales taxes.
Taking the example of a $360,000 house, the Toronto Real Estate Board estimates that will add $2,037 to the purchase.
When she buys another property, she would pay the tax on the closing costs as well.
The equation changes dramatically, however, if she purchases a new house that costs more than $400,000 because in that case the purchase price will be subject to the harmonized tax.
Not surprisingly, TREB is unhappy with the change.
“Obviously it's not good,” was the first reaction of TREB spokesman Von Palmer.
“We're shocked because we're still reeling from the land transfer tax,” he says.
Von Palmer points out that home buyers in Toronto are often already paying $4,000 to Toronto and another $4,000 to the province for the land transfer tax.
The harmonized tax does not affect new houses under $400,000: Under that ceiling, the status quo remains, Von Palmer says.
While the issue affects real estate across the province, Toronto's housing market will feel it more because house prices are higher, on average, he points out.
He says realtors were finally seeing some signs of hope in the city's property trade after months of sliding sales and price declines.
In the budget, newly built homes that cost more than $400,000 will be hit with higher taxes - ranging from $12,000 to $46,676 in Toronto, according to one study - while the federal government has agreed to drop the GST for those under that threshold.
There's a sliding scale upwards from there, with houses above $500,000 subject to the full 13 per cent combined tax.
TREB is working with the Ontario Real Estate Association to voice the displeasure of their constituency - real estate agents - to the province.
What about homeowners and prospective buyers? Does anyone care to weigh in?
Will this discourage you from buying or selling real estate or alter your budget?
Please post a comment or send an e-mail to cireland@globeandmail.com and I'll pass on the results.
UPDATE
“Robbery and extortion are two words that come to mind” says one home owner who is not taking well to the harmonized sales tax introduced in the Ontario government budget yesterday.
He sent me an e-mail saying that if he ever sells his house “it will be to move out of this blood-sucking province”.
This reader points out that he's been paying all of the repair and maintenance bills on his house for 20 years without any contribution from the province, so why do they suddenly feel the right to claim a 13 per cent interest in the property now?
And that's one of the more measured reactions I've received so far.
I've also heard from people shopping for their first house who say that any additional cost seems overwhelming. They feel discouraged.
But not everyone is against the tax changes: one reader posted a comment pointing out that taxes improve our city and provide infrastructure.
For those who are wondering about the timeline, the quick answer is that Ontario will convert its retail provincial sales tax (PST) to a value-added tax structure and combine it with the federal goods and services tax (GST) for a single 13-per-cent tax beginning July 1, 2010.
People have also raised excellent questions about how all of this will work under various scenarios: I'm looking into the answers, so feel free to keep the queries coming.
To read more about the budget, click below:
Ontario moves to soften blended-tax blow with consumer exemptions
