Sales Tax Harmonization Will Hurt Resale Home Market

Not that I want to be the bearer of bad news that could affect my livelihood, I think that everyone should know that the closing costs for selling or buying your home have just increased.

It is a good thing that the federal government is giving the buyers a bit of a break with their closing costs.  The provincial government has just increased them.

The Ontario Real Estate Association tells us:

(Toronto, March 26, 2009) Ontario’s REALTORS® say the McGuinty governments plan to harmonize the GST and PST will add over $2,000 to the cost of a real estate transaction, hurting the resale home market and prolonging the housing industry’s recovery from the current economic downturn.

“Now is not the time to be erecting barriers to homeownership,” said Pauline Aunger, President of the Ontario Real Estate Association. “We need consumers to invest in housing to help get our economy going again.”

According to the Canadian Real Estate Association, home sales in the province of Ontario were down 29 per cent in February, compared to 2008.

Under a harmonized sales tax (HST), home buyers and sellers will have to pay extra tax on a range of services associated with real estate transactions such as legal fees, moving costs, real estate commissions and home inspection fees. Currently, consumers only pay the 5% Goods and Services Tax (GST) on these services.

“These additional taxes could price some homebuyers, especially first-time homebuyers, right out of the market,” explained Mrs. Aunger. “Harmonizing will not help homebuyers in any way.”

For a resale house priced at $360,000, a HST could add over two thousand dollars in new taxes to closing costs. In total, a HST will add $313 million annually in new taxes to resale home transactions.

“In the last decade, Ontario’s homeowners have faced a barrage of new costs,” said Aunger. “From municipal land transfer taxes to sky rocketing property taxes, homeowners are being pushed to the brink to accommodate increasing demands from government. A harmonized sales tax is yet another cash grab on Ontario’s already overtaxed homeowners.”

QUICK FACTS

Table 1: HST and Resale Homes

Taxable Service

Current Tax Payable

New Taxes

HST Tax Payable

Mortgage Insurance Premiums1

$752.40

$470.252

$1222.65

Legal Costs

$50.00

$80.00

$130.00

Real Estate Fee/Commission

$720.00-$1,080.00

$1,152.00-$1,728.00

$1,872.00 – $2,808.003

Home Inspection

$20.00

$32.00

$52.00

Title Insurance

$24.00

$15.00

$39.00

Total New Tax:

$1,749.25-$2,325.25