June 8, 2009

Just as Toronto’s real estate market begins to recover, realtors and home builders are worried Ontario’s new harmonized sales tax could send sales plummeting again. While this will have a direct affect on sales, it will also have a direct affect on what is being built and where.

This bill will allow Ontario to blend the eight per cent provincial sales tax with the five per cent goods and services tax into 13 per cent harmonized sales tax, to take effect July 1, 2010.

Not only will this add thousands of dollars to closing costs of resale houses, but will added thousands upon thousands of dollars to sales over $500,000. To put it into perspective, the HST equates to additional $30,000 on a $500,000 home. Currently, new homes are exempt from PST. Under the HST, new homes worth less than $400,000 will qualify for a 6% tax rebate, but new homes worth more than $500,000 will be subject to an additional 8% tax.

A report, titled “Big Hit on GTA Middle-Class Homebuyers with the Ontario Budget’s HST Proposals,” released by the Building Industry and Land Development Association (BILD) states that middle-class families get hit the hardest by the $800 million tax increase due to the fact that homes over $400,000 are not just purchased by “wealthy” Ontarians. In fact, 30 per cent of homebuyers who purchase new homes between $400,000 and $500,000 have an annual income of $70,000 or less, while half have an income of $100,000 or less and are firmly “middle-class,” the report discloses.

Not only will the number of sales being affected, but the mix of new houses over $500,000 will be directly affected.

One builder that BuzzBuzzHome spoke to was considering purchasing a developed site in Toronto, but pulled out at the last moment because the approved lots sizes would mean that the finished houses would need to sell in the market for over $500,000, and as such he would have a hard time selling the properties due to the HST.

Another suburban developer that spoke to BuzzBuzzHome stated that he is in the process of re-developing some of his projects to ensure that there will be little to no homes that will sell over the $500,000, as the project will not be viable due to the tax.

This tax will more than just hurt sales, but will alter the geography of the housing landscape, and leave very few new homes for purchasers to purchase over the $400,000 to $500,000 mark.

It should be noted that one developer has even started referring to the HST as the Holy Shit Tax.

Disgruntled citizens must take a cue from the Founder and CEO of Zappos, who states:

“It’s a very different world today. With the Internet connecting everyone together, companies are becoming more and more transparent whether they like it or not. An unhappy customer or a disgruntled employee can blog about bad experience with a company, and the story can spread like wildfire by email or with tools like Twitter.”

This massive tax grab is coming at the wrong time for the real estate and development industry, and people need to make their voices heard. This new tax will be tough to repeal, and will negatively affect the real-estate landscape for many many years to come.

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