Toronto Real Estate HST

Ontario Harmonized Sales Tax and its effect on Real Estate

The government of Ontario will combine the 5% federal goods and services tax (GST) with the 8% Ontario retail sales tax (RST) to form a 13% Harmonized Sales Tax (HST), effective July 1st ,2010. The HST will generally be applied in the same way as GST does to the goods and services provided in Ontario.

The HST will not be applicable to the sale of resale residential homes. However, under the harmonized sales tax (HST), home buyers and sellers will have to pay extra tax on a range of services associated with the real estate transaction; services such as legal fees, Mortgage Insurance Premiums, Real Estate fee/ commissions, home inspection and Title Insurance. These additional costs can sum up to more than $2000. Currently, consumers only pay the 5% Goods and Services Tax (GST) on these services.

All New Homes will be subject to the HST, however houses sold for $400’000 and less will be qualified to a %6 rebate from the government. Homes sold for more than $500,000 will be subject to the most significant increase in tax.

Under HST system the builders will be able to claim credits for all of the sales tax they pay on their inputs. Under the current taxation system unrecoverable RST paid by builders for purchase of constructions material is estimated to account for the 2% to 3% of the whole construction cost. So construction costs are expected to decrease under the new HST Taxation system.

What else is going to be effected?

Condos’ maintenance fees are estimated to increase by 5 to 7%, which has the potential of causing trouble for condo builders. Since it could trigger the “material change” provision in the purchase contract which is designed to enable purchasers to get out of the a deal if the terms and conditions had significant changes. Although it’s said that the rough number to get out of a deal in the past has been 10%.