The new 13% Harmonized Sales Tax (HST) came into effect on July 1st, 2010 in Ontario and will affect the real estate market in the following ways:
- HST does NOT apply on the purchase price of re-sale homes.
- HST does apply to many goods and services such as moving cost, legal fees, home inspection fees, some utilities and REALTOR® commissions (paid by the Seller).
- HST does apply to the purchase price of newly constructed homes. However, the Province is proposing a rebate so that new homes across all price ranges will receive a 75 per cent rebate of the provincial portion of the single sales tax on the first $400,000. For new homes under $400,000, this would mean, on average, no additional tax amount compared to the current system.
- Generally, sales of new homes under written agreements of purchase and sale entered into on or before June 18, 2009 are not be subject to the provincial portion of the single sales tax, even if both ownership and possession are transferred on or after July 1, 2010.
- The tax also does not apply to sales of new homes under written agreements of purchase and sale entered into after June 18, 2009 where ownership or possession is transferred before July 1, 2010.
How will this affect condos? According to John Warren, a writer for Condominium Manager Magazine as reported by David Flemming with Bosley Real Estate Ltd., condo owners will be affected in the following ways:
First, reserve fund study providers estimate that almost all reserve fund expenditures, both actual after June 30, 2010 and projected for future years in reserve fund studies, will increase by approximately 5% to 7% due to the imposition of the HST, assuming most of the PST savings are passed on. Condominiums should update their reserve fund studies during 2009 so that the increased reserve contributions that will result from the increase in taxation can be considered in the 2010 budget.
Second, operating costs will increase.
Current estimates are that electricity, gas, communications, cable television and contracts for management, concierge, elevator and mechanical equipment maintenance, landscaping, cleaning and similar services will increase by close to 8%; water costs should not change as they are not presently subject to PST or GST, nor will they be subject to HST, repairs and supplies – 5% to 7%; professional fees – 8%; office – 5% to 7%; and, finally, insurance should not change as it is presently subject only to PST, which tax will continue and insurance will not be subject to HST.
What does that mean for the real estate market? Well, it means a few things.
For the resale market we saw listings increase as sellers hoped to sell before July 1st to avoid paying additional tax on their legal and Realtor fees. A lot of people are misled to believe that all deals must close before this date but, in fact, if 90% or more of these services are fulfilled before July 1st, Sellers will not have to pay the additional tax.
For the new home market we have seen a spike in new condo and home sales before July 1st for this same reason. Also, most builders have changed their project plans by gearing more toward more low-priced homes and condo suites to avoid such a significant tax hit.
Furthermore, not only will homeowners be affected, renters will be too as rent will increase based on operating costs for buildings and homes.
Remember, the real estate market is the backbone of our economy so it pays to be informed. If you have any questions this any any other real estate matter, feel free to ask us. We're here to help!