HST and Its Impact on Buying & Selling Real Estate
By Nawel K Seth
In Ontario, Provincial Sales tax has been 8% and the federal sales tax i.e. GST 5%, thus a total tax of 13%. Effective July 1, 2010, these two taxes will be combined and a new Harmonized tax shall be implemented. This harmonized tax will be 13%. Many services that were exempt of either of the taxes will now attract both taxes, thus making many products and services more expensive.
Buying and selling real estate will not escape this onslaught. Even though, there is no HST payable on the purchase or sale of a resale home, many services associated with the buying and selling will now attract increased taxation. Example of the increased costs is as follows:
- Legal fees
- Real Estate fees /commissions
- Moving costs
- Home Inspection costs
- Mortgage Insurance premiums
- Condo Management fees
- Concierge services
- Utilites
The condominiums fees are exempt from the HST, though they will also go up as many of the components that make the maintenance fee, will attract HST. The residential rents are exempt from HST but the renters will not escape HST altogether. As the costs of the landlords will go up, they are likely to pass these costs to the consumers. It is estimated that rents will go up by 2.5% to 3% because of the new HST.
The commercial rents will be subject to HST, but these taxes will be treated as flow through input credits. There is a complex formula for HST on new homes. Homes under $400,000 are exempt from the additional tax. On new homes priced up to $400,000, there will be rebate of up to $24,000, which is equivalent to the 75% of the 8%, of the provincial portion of the tax. This rebate in almost all cases will be assigned to the builder and is built in the price of the property.
A resale property that has been 90% renovated will be treated as a new home and will be subject to HST. Farm land will also be subject to HST, if it is sold alone, however, it may be treated differently if it is sold as a part of the farming business.
No HST shall be payable if a personal building lot is sold, however, if it is part of the commercial activity of the seller, HST will apply. There are complex calculations for calculating HST for properties under construction and the transitional rules that apply. It is recommended that the reader contact the Canada Revenue Agency (CRA) for detailed explanation: For Personal property and services – 1 (800) 959-5525 For Real property – 1 (800) 959-8287.
For further details, you may wish to visit their website www.WeListFree.net or contact them at 416-630-1999 / 905-660-7999 / 1-866 890 1999 or by email biztrackers@hotmail.com. Author: Nawel K Seth, MBA – The author, Nawel K Seth is a veteran in the field of Real Estate & mortgages, and is a regular contributor of articles on the web. He holds multiple post graduate degrees from prominent North American universities. He has over 40 years diversified field experience and a distinguished career as a businessman, and a marketing consultant. This article briefly covers different kinds of legal instruments / documents in the field of real estate.
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