Harmonized Sales Tax And Homebuyers

Everyone looking to buy a new home or wanting to sell their existing residential real estate ought to know at least 10 things related to Harmonized Sales Tax (HST). This is essential as HST as it is directly related to the purchase and sale of your home.

Even as the government put the Harmonized Sales Tax into operation in British Columbia and Ontario amid a lot of pomp and ballyhoo on July 10, 2010, the move raised cries of despondency and doom among the taxpayers in these regions. Precisely speaking, the newly implemented HST is a combination of the federal Goods and Services Tax of five per cent and Provincial Sales Taxes of seven per cent in British Columbia and eight per cent in Ontario, into a single tax at the register of 12 per cent and 13 per cent respectively.

While there are conflicting views on whether the ultimate impact of the Harmonized Sales Tax would be good, bad or somewhat middle-out-the-road, there is little doubt that the consequences of the combined new tax would be noteworthy for any one looking to purchase a new residential real estate property or people wanting to sell their existing homes. Actually, there are ten primary ways how the new tax system has influenced people buying homes, selling their existing home and others after this Canada Day on July 1, 2010.


Although there is hardly any person in Canada who would receive any new tax with unrestrained eagerness, majority of the Canadians seems to be of the view that in general, the Harmonized Sales Tax (HST) would have few bearing than what most people are apprehending. For instance, a number of items that were free from retail taxes earlier, for instance, prescription drugs and groceries, would continue to be exempted. At the same time, most of the items of daily use that were under the purview of the Goods and Services Tax (GST) as well as the Provincial Sales Tax (PST) earlier will also remain unchanged. Another category of products, which were under the purview of the GST, but not subjected to the PST, for instance, children's garments, books and other items, will continue to be exempted from the PST. However, an entire range of products that were only subjected to the GST will now witness a considerable hike in taxes with the HST being implemented. Precisely speaking, this is the actual part of the HST which is controversial, as now new taxes would be imposed on items, such as gasoline, magazine subscription, haircuts as well as an assortment of other products and services.


It is a matter of fact that no provincial government will ever acknowledge that implementing the Harmonized Sales Tax (HST) would eventually result in a tax rise. Nevertheless, keeping this aspect as well as the public resentment over the HST in view, the provincial government in Ontario has already initiated a number of measures to counterbalance the impact of the new taxes on families. In fact, the provincial government in Ontario has begun dispatching rebate cheques of as much as $1000 in three installments as well as introduced tax credits and discounts in income tax to make up for the consequences of implementing the HST. On the other hand, the provincial government in British Columbia has decided on tying its discounts directly to income combined with redeemable tax credits added with GST and carbon-offset tax discounts.


According to the claims made by the government, as in the instance of GST, every type of hidden taxes on products are implied in the ultimate cost to the consumers, and upgrading the tax collection method would eventually result in additional aggressive pricing on merchandise produced locally. This, in turn, would result in more jobs as well as drop in the wholesale prices, the government said. In other words, if the government claims are to be true, this would denote a an overall decrease in the price of a number of building materials as well as other items produced in British Columbia and Ontario.


Earlier fees of the lawyers were only under the purview of GST, but now it will be subject to the entire HST - GST and PST. However, supplementary and disbursement costs, such as postage, faxes and others, were liable to the federal taxes as well as provincial taxes earlier and they will continue to remain as it has been before.


Perhaps the most excruciating sting for people wanting to sell their existing homes is the fact that the real estate commissions would now be liable for taxation under the Harmonized Sales Tax. Earlier, real estate commissions were subject to GST and this has changed with the implementation of HST. In other words, this denotes that home sellers would now have to bear a HST of $30,000 on account of real estate commission for a resale home worth $600,000 in Ottawa. This is an additional tax payment to the tune of $2,400, which home sellers did not have to cough up till June 30, 2010 - before the HST was implemented.


Nevertheless, even after the implementation of HST from the Canada Day all the charges related to selling a home has not been changed. For instance, resale houses and majority of banking and mortgage fees will continue to be the same as they were before the implementation of HST - exempted from taxation.


Under the provisions in HST, all new homes are entitled for discounts of a part of the provincial tax in British Columbia as well as Ontario. However, this is conditional on the purchase price of the new homes. For instance, all new homes having a price lower than 4400,000 are entitled for a tax discount of 75 per cent with a maximum limit of $24,000 in Ontario. On the contrary, any new home bought for over $400,000 are also entitled for this tax rebate, conditional on the fact that the real estate property will be used as the main residence of the buyer.


However, the tax discount on new residential real estate property is somewhat further complicated in British Columbia. Here, the maximum cost of the new home has been fixed at $525,000 for availing the tax rebate. All new homes purchases at a price lower than $525,000 are entitled for a tax discount of 71.43 per cent of the provincial sales tax (PST) part of the HST. On the other hand, people buying new homes at prices above $525,000 are allowed to apply for a fixed tax discount of $26,250.


In the instance of a residential real estate contract being closed before July 1, 2010 when the HST was implemented, but the buyer takes possession of the property on July 1, 2010 or later, his or her purchase is conditional to a special clause of the HST - referred to as a 'grandfather clause'. Precisely speaking, this 'grandfather' clause is nothing dissimilar to the taxation under the GST method. In this case, the home is liable for taxation under the federal part of the HST (only 5%) and not under the provincial component of the Harmonized Sales Tax. Nevertheless, any such home is not entitled for any tax discount either in Ontario or British Columbia.


Irrespective of whether it is a new or resale residential real estate property, when a buyer takes ownership of his or home, several of the additional expenses related to the purchase of the property as well as moving into the home will go up under the HST. For instance, expenses or fees incurred on painters, designers, contractors, packing and moving firms and several additional service providers will hike their fees after the implementation of HST from July 1, 2010. Nevertheless, expenses incurred on home items, such as paint, furnishings, lamp, new gadgets as well as all other thing that you may purchase in retail will more or less remain as before. However, there is an exception to this - the wholesale prices or the ultimate prices to the customer for merchandise produced in British Columbia or Ontario are likely to decrease as with the implementation of HST, taxes paid during the manufacture of these items have been withdrawn.

According to many, during the initial few months of implementation of HST, it is likely that the most notable repercussions of the new tax system would be mental or emotional. It is believed that such mental impact over the HST may, in turn, potently affect the real estate markets in Ontario and British Columbia. Nevertheless, the actual impact of the HST on the Ontario and British Columbia real estate markets, which are the two most happening markets in Canada, remains to be seen.

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