Combined Sales Tax Could Cost Homebuyers Thousands

[Eug]

I'd like to see what % of houses sold in Ontario cost over $400,000. I personally have no idea, but that number could make a pretty huge difference.

Dunno about Ontario in general, but the average price for a home in Toronto is a little under $400000, which means that nearly half of all homes sold in Toronto (and that "all" includes condos), are more than $400000.

This new tax is going to be especially punitive for the GTA.

 

[afransen]

It's distortionary in that you get less house for your money. Since people generally have a set amount in their heads when they buy a house, I think developers are afraid that they 8% increase will come out of their pockets as people will buy cheaper houses. I'd like to see what % of houses sold in Ontario cost over $400,000. I personally have no idea, but that number could make a pretty huge difference.

That isn't really distortionary. It's just a one-time supply shock. Some of the price increase will be borne by builders, and some by buyers. There's nothing sacred about housing--I don't see why it matters that we tax it.

 

[nfitz]

I have to admit, it does seem poorly planned, that if they have a rebate on a $400,000 house of 6% of $400,000 ($24,000) ... that a $500,001 house would not have a $24,000 rebate, rather than a $0 rebate!

 

[Eug]

That isn't really distortionary. It's just a one-time supply shock. Some of the price increase will be borne by builders, and some by buyers. There's nothing sacred about housing--I don't see why it matters that we tax it.

Nobody says we should not tax it. People are saying the tax has been implemented very stupidly. Most people hoped that if there were rebate, it would be applied across the board. ie.

First $400000 exempt and $400000-500000 partially exempt, on ALL newly built homes. That way, someone buying a $600000 home would pay full tax on $100000-200000, and someone buying a $1000000 home (which is common in Toronto) would pay full tax on $500000-600000.

Furthermore, this tax is advertised as being revenue neutral, despite the fact that other jurisdictions that claimed the same did it by reducing the provincial amount somewhat at the time of harmonization. Ontario has not done this.

 

[Yoshimura]

There's nothing sacred about housing--I don't see why it matters that we tax it.

Because it's simply relies violence to extort money. Not really progressive

 

[Felino]

Nobody says we should not tax it. People are saying the tax has been implemented very stupidly. Most people hoped that if there were rebate, it would be applied across the board. ie.

First $400000 exempt and $400000-500000 partially exempt, on ALL newly built homes. That way, someone buying a $600000 home would pay full tax on $100000-200000, and someone buying a $1000000 home (which is common in Toronto) would pay full tax on $500000-600000.

Furthermore, this tax is advertised as being revenue neutral, despite the fact that other jurisdictions that claimed the same did it by reducing the provincial amount somewhat at the time of harmonization. Ontario has not done this.

Great post!

 

[afransen]

I've already said that exempting the first $400k for all new homes makes more sense (or exempting nothing at all). Most of the arguments seem to be that the HST will destroy the new housing market, which is of course absurd.

 

[Eug]

I've already said that exempting the first $400k for all new homes makes more sense (or exempting nothing at all).

It does, but that's not what happening.

Most of the arguments seem to be that the HST will destroy the new housing market, which is of course absurd.

That's an exaggeration of course. People aren't saying it will destroy the new home market. People are saying it will hurt it, and that's accurate.

 

[afransen]

More than anything, I see it supporting prices for existing homes.

 

[Felino]

More than anything, I see it supporting prices for existing homes.

How exactly is the HST going to support prices for existing homes? If anything, it will drive up the cost of them.

Since no builder would dream of building new homes here for fear they won't be sold (except for million dollar homes). So for someone such as myself who's on a limited income and committed to downtown city living, I'm screwed either way.

 

[AKS]

I think the HST only applies on new homes. Not existing ones. So HST supports existing homes. By making prices of new homes very expensive, it would be more attractive to by resale homes. Course this action will discourage builders from building downtown. However they're going to find a way around that.

 

[Hank]

I think the HST only applies on new homes. Not existing ones. So HST supports existing homes. By making prices of new homes very expensive, it would be more attractive to by resale homes.

If resale homes are more attractive, more people will be looking to buy a resale home. With more demand and (assumedly) the same supply, prices will rise. Hence the comment that this will drive up (and not support) the cost of existing homes.

However, so what? This is a tax. It raises prices. That's what taxes do. As afransen said, why are homes sacred? I don't hear anyone complaining about the fact that legal services are now going to be taxed (and legal services aren't cheap as it is). I agree that the implementation (with the under $400,000 thing) is poor, but assuming they fix that before it's fully implemented (which I still hope they might do), I don't have a huge problem with this tax. Once the economy improves, however, I hope that it will allow them to lower income tax rates to compensate for any increased revenue.

 

[Eug]

More than anything, I see it supporting prices for existing homes.

I see three scenarios.

1) New home development takes a hit, making resale homes more attractive and resale prices creep up.
2) New home development takes a hit, but resale homes stay the course price-wise.
3) New home development takes a hit, but resale homes drop a bit to follow the lower pre-tax prices of new homes.

In all three scenarios, new home development takes a hit.

However, so what? This is a tax. It raises prices. That's what taxes do. As afransen said, why are homes sacred? I don't hear anyone complaining about the fact that legal services are now going to be taxed (and legal services aren't cheap as it is).

This has already been mentioned in many places. The tax hits everyone buying a home, but is esp. punitive for those buying a resale home, and affects all sorts of other things too. However, this is a homebuyers thread, not a legal services thread.

I agree that the implementation (with the under $400,000 thing) is poor, but assuming they fix that before it's fully implemented (which I still hope they might do), I don't have a huge problem with this tax.

Why do people keep saying this? The government has already given us their plan. We can lobby for them to change it, but don't count on it. In fact, they could do just the opposite. After a certain time, they will want to reduce the exempted amount so that even more HST will be charged on new homes.

 

[ididthat]

I noticed that this question was asked earlier, but still left unanswered.

What is the implication of this tax on the contracts that are currently out?

What I mean by that is that if you have signed on a new home or condo and it is in pre-construction, does the fact that you have signed before the tax is implemented exempt you regardless of the price? Or does construction have to begin for someone to be exempted? Or are you not exempt at all because you have not taken final occupancy?

I would ask if you have gained occupancy, but that should be fairly straightforward. Of course except when you look at interm occupancy as opposed to full closing.

This HST has extremely large implications for the new condo market in Toronto as it poses to stifle an industry that supports hundreds of thousands of workers. As well, new home developments in Toronto and the rest of the GTA face the same impact of the increase of taxes.

Even though first time buyers generally get rebates on various taxes (G.S.T., L.T.T., and T.L.T.T.), this would not offset the fact that most new build condos in the city are starting in the mid to high $200's for a small one bedroom place. If you want bigger, you are going to get to that $400,000 marker fairly easily when upgrades are factored in. I use first time buyers here simply because in Toronto, the majority of those moving into new build condos are in fact first time buyers and those and other rebates apply.

As well, there are quite a few areas of the city where re-development is happening and could be considered essential to the regeneration of the communities. The implementation of the HST could potentially halt the progress that these neighbourhoods have made thus far.

Also, the HST plays a factor in the redevelopment of existing homes.

How many people have seen a small house purchased in the area for a reasonable price, only to see it demolished and a much larger and very much more expensive house go up in it's place. Well, those homes are also subject to the HST.

The significant positive of this though is that those in the resale market in the province should be feeling quite lucky and secure in the fact that this tax does not apply to them.

 

[Eug]

How many people have seen a small house purchased in the area for a reasonable price, only to see it demolished and a much larger and very much more expensive house go up in it's place. Well, those homes are also subject to the HST.

Yes and no. If it's completely demolished, then yes.

However, what a lot of people do is keep part of the structure to avoid the GST. Sometimes one can keep the foundation and build mostly a new house, and still fenagle it to avoid the GST.

Unfortunately, this is often not ideal, for obvious reasons, and any home not built in this fashion will get hit hard by the HST.

Also, it's going to be interesting to see how many of those "white box" homes get built, which are literally bare bones homes under the $400000 mark, with not just poor finishes, but maybe no finishes at all in some rooms.