HARMONIZED SALES TAX (HST)

AND HOW IT AFFECTS THE REAL ESTATE MARKET

There’s been a lot of confusion about the HST, so we would like to explain how the new tax applies to the real estate industry. The following are some questions clients have asked us and our responses.

What is the HST Tax?
The HST combines the 8% Provincial Sales Tax (PST) with the 5% Goods and Services Tax (GST) for a total of 13%. The proposed 13% HST comes into effect July 1, 2010.

How does HST work when selling or buying a Resale home or condo?
The HST does not affect the seller or buyer of a Resale home. It will Increase the tax on services such as home inspections, legals, real estate fees plus moving expenses and any other additional services. Currently the GST for services is 5%; after July 1st, 2010, the full 13% will be applied. For example, if you are selling, and your real estate and legal fees are $20,000, you would be paying 5% GST, which is $1,000. After July 1, 2010, you will be paying 13% HST, which will be $2,600. Therefore your taxes have increased by $1,600. There is no HST on Resale homes or Condos.

How does HST work when you buy a New home or Condo?
HST will be charged for all New homes and condos. However, homes with a purchase price of $400,000 or less, will have a rebate of 75% of the provincial tax portion (8%) of the HST, up to a maximum of $24,000 an example, of this is if you are buying a home for $400,000 you will be paying the provincial portion of the tax ($32,000-$24,000=$8,000), which is 25% of the provincial portion in addition to the GST. If purchasing a home for $300,000, the additional tax $6,000; and on a $500,000 home, the tax will be additional $16,000. So, for the first $400,000, you will be paying $8,000 then you will pay an additional 8% tax on anything over $400,000 plus the existing GST.

For New homes or condos that close after July 1, 2010, how does the HST affect the purchase?
All purchases of New homes and condos on or before June 18, 2009, are not required to pay the provincial portion of the HST (even if closing date is after July 1st, 2010). This applies to any purchase after June 18, 2009, but must take possession prior to July 1, 2010. If you purchased a New home or condo after June 18, 2009, with a closing after July 1, 2010, you will be paying HST.

If you presently own a condominium townhouse or apartment, will my maintenance fees be affected?
Normally maintenance fees increase 4% to 7%. After July 1st, 2010 all the repair and maintenance services, for example garbage removal, landscaping and the upkeep of the amenities and common areas will be charged 13% HST, this is an additional 8% increase from the 5% GST which is presently being charged. Therefore Condo corporations will need to increase the maintenance fees. Reserve funds will also need to be increased to pay for any future renovations or repair projects.

What happens if we renovate?
Your renovation will increase by 8% for all labour. For example, if the project cost $100,000 with $50,000 in labour costs, now you will pay 13% HST on labour instead of 5% GST. That means your renovation will increase by $4,000.

We are always available to help you with your selling or buying needs.