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HST will impact condo maintenance fees

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dpylyp

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"Next year at this time, the Ontario government – the same government that still maintains rent controls – will raise monthly maintenance fees for all condominium owners by between 5 per cent and 8 per cent.

Renters will face rent hikes based on operating costs for their buildings. Those increases will vary but could be in the $25-a-month range for a downtown one-bedroom suite.

Owners of older condos may face an even greater hike to top up their building's reserve fund if major work such as replacing a roof is slated for the near future.

At the same time, developers of projects with suites already sold but not yet occupied are scurrying to their lawyers. Their concern is an 8-per-cent hike in monthly maintenance fees may trigger the “material change†clause in purchase agreements and allow buyers to back out of signed deals."

http://www.theglobeandmail.com/real-estate/its-coming-hst-may-scuttle-condo-deals/article1204454/

You need to read the rest of this for yourselves.

According to the Author, the maintenance fees will increase on all existing units in addition to those that have purchased may now have an "out"

What are your thoughts?
 
dpylyp said:
"Next year at this time, the Ontario government will raise monthly maintenance fees for all condominium owners by between 5 per cent and 8 per cent.What are your thoughts?
Click to expand...

I read that article and really wonder if it's totally correct. I assume that the MANAGEMENT FEE paid by the Condo Corporation to the Management Company part of the monthly condominium 'contribution' is now subject to GST because it is a service and that this part of the fee will be hit with the new provincial part of the HST. BUT, the management fee part of the monthly condo cost is not the major part; a large % goes towards contributions to the Reserve Fund and pays the Condo Corporation's staff (Superintendent, cleaners etc) and contractors (plumbers, electricians etc) and covers running expenses like hydro, water, garbage. I think the HST will be charged on SOME of the components of the monthly fee but certainly not all of it and if one pays GST on 'outputs' one can also claim GST rebate on 'inputs". Other ideas?
 
I think this is just an inflamatory article meant to scare people that their rents and condo fees will skyrocket with the HST. It's been implemented all around the world and people adjust. Prices adjust accordingly.

I despise the fact that all of the media in Toronto are only focused on the negative aspects of the HST. There are many benefits that will be realized to both businesses and reduction of income taxes that everyone forgets about.

HST is a progressive tax versus the GST+PST. Do I wish more things be exempt from it, sure, but do I think it will have a huge impact on people's lives, no.
 
DSC said:
I read that article and really wonder if it's totally correct. I assume that the MANAGEMENT FEE paid by the Condo Corporation to the Management Company part of the monthly condominium 'contribution' is now subject to GST because it is a service and that this part of the fee will be hit with the new provincial part of the HST. BUT, the management fee part of the monthly condo cost is not the major part; a large % goes towards contributions to the Reserve Fund and pays the Condo Corporation's staff (Superintendent, cleaners etc) and contractors (plumbers, electricians etc) and covers running expenses like hydro, water, garbage. I think the HST will be charged on SOME of the components of the monthly fee but certainly not all of it and if one pays GST on 'outputs' one can also claim GST rebate on 'inputs". Other ideas?
Click to expand...
The problem is that as non profit corporations, condo corporations will not be allowed to deduct the cost of the HST. Therefore we ( I am a member of a condo board) will be forced to the the HST on everything. Whereas before, we only had to pay either the GST, or PST...but generally not both. So, for the most part, our expenses will go up 5-7% overall--which can only be recouped by cutting services, or increasing maintenance fees.
 
adrian999 said:
The problem is that as non profit corporations, condo corporations will not be allowed to deduct the cost of the HST. Therefore we ( I am a member of a condo board) will be forced to the the HST on everything. Whereas before, we only had to pay either the GST, or PST...but generally not both. So, for the most part, our expenses will go up 5-7% overall--which can only be recouped by cutting services, or increasing maintenance fees.
Click to expand...

Condo fees are in two parts, contributions to the operating fund and contributions to the Reserve Fund. Why would you pay HST on the contribution to the Reserve Fund portion? - you do not pay GST on it now. In most condos the RF contribution is between 33% and 50% of the total monthly fees.
Of course you will need to allow for HST being added to the expenditures from both the operating and reserve funds but PST will no longer apply. This is, in essence, no different to home owners. Many of these expenditures now have a PST component, which will not exist any more. The imposition of HST is absolutely no greater on condo owners than on house owners (except that HST will be due on the Management Fee you pay to the property management company - few homeowners hire a company to manage their property!
I do not deny that some things will increase in price due to HST but other things will decrease and I doubt VERY much that that there will be an over-all increase of 5-7%. (There is also the individual tax credit...)
 
DSC said:
Condo fees are in two parts, contributions to the operating fund and contributions to the Reserve Fund. Why would you pay HST on the contribution to the Reserve Fund portion? - you do not pay GST on it now. In most condos the RF contribution is between 33% and 50% of the total monthly fees.
Of course you will need to allow for HST being added to the expenditures from both the operating and reserve funds but PST will no longer apply. This is, in essence, no different to home owners. Many of these expenditures now have a PST component, which will not exist any more. The imposition of HST is absolutely no greater on condo owners than on house owners (except that HST will be due on the Management Fee you pay to the property management company - few homeowners hire a company to manage their property!
I do not deny that some things will increase in price due to HST but other things will decrease and I doubt VERY much that that there will be an over-all increase of 5-7%. (There is also the individual tax credit...)
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The individual tax credit is only for first year I think. $300 for income under 80k. $100 in 3 payments. Income tax reduction by 1% for incomes under 36k. No change for others. Credit of $270 or something for income under 20k of household income? I forget the exact amount.
http://www.fin.gov.on.ca/english/budget/ontariobudgets/2009/chpt3.html#c3_pos

I think the amount of taxes people end up paying over all will be way more than the subsidize. I feel bad for students who have to pay tuition. They're gonna see hikes too and it's already hard paying for tuition. At least the books are tax free :rolleyes:

Anyhow it's not just maintenance fees going up. It's cost of living basically with everything you spend from shopping, food, internet, lawyer fees, movies, etc. Most spending costs will be hiked.
 
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The reserve fund is based on the cost to replace something in the future--including the taxes. If the cost to replace something is based on an item not having PST, for example...and now the item is covered under the HST, it stands to reason that the amount of money needed to go into the reserve fund will increase. That is the connection between the reserve fund and the HST. It's not like we are paying taxes on the reserve fund contributions...but that the reserve fund is "short" on the funds to pay the now higher replacement costs.

But you say it yourself "you will need to allow for the HST being added to expenditures...but the PST will no longer apply". BUT the HST is HIGHER than the PST, and will cover more items. How exactly does that benefit an individual homeowner, or a condo board?

And for the record...you've grossly overestimated the contributions to the Reserve Fund. We pay approximately 16% of our revenue ( maintenance fees, etc) to the reserve fund. AND it's completely healthy, and funded at the correct level. Again, you don't have to take my word for it...but I've been the Treasurer of a condo board for 2 years (budget 1.5 million). Security, hydro, water, gas, cleaning contracts, maintenance, cleaning supplies, legal bills...all will now be subject to the HST. Trust me...an increase in maintenance fees of 5% is easily justifiable.

And again...while individual owners can claim the GST credit...as a corporation, we can't.
 
I am a confused how HST will work. Can someone please provide examples on how the HST will effect pre-construction and resale condo units?...For example if I were to purchase a pre construction unit lets say of $400,000 before and after July 1,2010? and $400,000 on a resale condo before and after July 1,2010?..
 
adrian999 said:
The reserve fund is based on the cost to replace something in the future--including the taxes. If the cost to replace something is based on an item not having PST, for example...and now the item is covered under the HST, it stands to reason that the amount of money needed to go into the reserve fund will increase. That is the connection between the reserve fund and the HST. It's not like we are paying taxes on the reserve fund contributions...but that the reserve fund is "short" on the funds to pay the now higher replacement costs.

But you say it yourself "you will need to allow for the HST being added to expenditures...but the PST will no longer apply". BUT the HST is HIGHER than the PST, and will cover more items. How exactly does that benefit an individual homeowner, or a condo board?

And for the record...you've grossly overestimated the contributions to the Reserve Fund. We pay approximately 16% of our revenue ( maintenance fees, etc) to the reserve fund. AND it's completely healthy, and funded at the correct level. Again, you don't have to take my word for it...but I've been the Treasurer of a condo board for 2 years (budget 1.5 million). Security, hydro, water, gas, cleaning contracts, maintenance, cleaning supplies, legal bills...all will now be subject to the HST. Trust me...an increase in maintenance fees of 5% is easily justifiable.

And again...while individual owners can claim the GST credit...as a corporation, we can't.
Click to expand...

I couldn't agree with you more. I am also on a condo board and you've outlined what's going to happen perfectly.

Some of you say, it's only a few more bucks on things but those few bucks soon add up to a lot of money because the HST is going to be charged on everything whereas the PST was selectively charged. For example at a condo: labour was not charged PST just GST. So now any labour charges that condos incur will be paying 13% instead of 5%. That's a big jump. Getting a haircut will now be charged 13% instead of 5%, etc.

It's now a blanket tax with few exceptions. It's just more of our disposal income being taken away.
 
The government is also giving back some of your disposable income by cutting everyone's income tax rate from 6.05% to 5.05% for income between approx 10K - 40K. This translates to about $380 - $400 per year. That will offset some of the minor increases on things like haircuts and other monthly services that will now have HST applied. For those folks who are low income, the tax credit for GST will now be replaced with a much larger HST credit, to cover that income group. This new tax is meant to stimulate manufacturing and other businesses from investing more into new machinery, tools, which with the removal of PST should now cost less. This will help to increase Ontario's poor productivity improvements compared to the US and other countries.

In the end this tax mainly hits new home buyers spending over $400K. Those little changes on paying 13% vs 5% on a hair cut translates to maybe $20 over the course of a year. Yes, condo fees will go up but not necessarily by 13%, but even if it did, that still would not affect most people because the tax savings of about $400 would cover the increase. Aside from condo fees, haircuts and personal hygiene things, what other services do people use during the course of a year? (I'm not talking about one time fees for a lawyer when purchasing a home, but rather recurring fees).

I'm very much pro HST, it is a much more modern and progressive tax than the outdated PST+GST. Would I have liked the rate to go down to say 10%, sure, but the concept of a single sales tax is a good thing in my books.
 
So what if your income is above $40K? Your income taxes go up, plus you get to pay the HST on all those items that were not previously subject to the PST. Fuel, natural gas, haircuts, labour, etc... that all adds up to a chunk of change at the end of the year. What if you run a business and you can't pass the added cost of doing business to you customers becuase of competative forces in the private sector? What if you run a service business and fuel is an unfortunate necessity because you can't take lengths of pipe, conduit, lumber, sheetrock, 6" OS&Y valves, tools and such on the TTC? An added 8% on top of fuel adds up and has a very negative effect on your operations. If you spend $30,000 a year on fuel, add another $2400 to the operating budget... money that many have went to help purchase new equipment, provide a raise to a hard working employee, cover group benefits, buy new dies for your pipe threader, etc. You have to make that back somehow.

For a Condominium Corporation, a hefty chunk of the budget goes to labour to keep the building in good repair. Every day, trades are on site, billing by the hour to keep the elevators, HVAC, plumbing, lighting, security, fire protection and a host of other important systems operating. There is no PST on labour now, but the HST will raise tax on labour from 5% to 13%. If a Condo has $100,000 in labour costs each year, a not unreasonable sum for a typical high-rise, there is an added $8,000 that didn't have to be covered by the budget. Some might think that $8,000 isn't all that much money in grand scheme of things, and if that is the case, please send me a cheque for that amount. Otherwise, you know that is not chump change. So the cost to the Condo goes up, and the expenses of the trades have gone up as well. Someone has to pay those added expenses and it either gets passed onto the customer or is covered by cutting the budget (layoff a staff member, put off purchasing a new vehicle, wage freeze, etc.).

This tax is on more than just movies and haircuts, much more.
 
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