All About HST

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The New Ontario Harmonised Sales Tax...

Like it or not, this new tax will take effect on July 1, 2010.

The Provincial Sales Tax of 8% percent will be combined with the Federal GST Tax of 5% percent, to create a new “harmonized” total tax of 13% percent. Previously, in most real estate transactions, only the GST applied.

There is no HST tax payable on the sale of a resale home (residential). New homes will now be taxed at 13%.

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, moving costs, real estate commissions and home inspection fees. Currently, consumers only pay the 5% Goods and Services Tax (GST) on these services.

After July 1, 2010:

If you are a seller, there will be a 13% percent tax payable on the real estate commission you pay – currently there is only the 5% percent GST payable on this fee. Your lawyer’s fee will also be subject to the 13% percent HST, as will the cost of a Condominium Status Certificate.

If you are a buyer, a Home Inspection you pay for will be subject to the 13% percent HST. The cost of the CMHC premium for “high-ratio” mortgages has traditionally been taxable for PST – this amount will now be taxable for the full 13% percent HST. All moving companies will be charging HST as will any contractors.

The Ontario Real Estate Association (OREA) issued a press release summarizing how these costs will affect a straight forward transaction. OREA used a home (resale) priced at $360,000 It was determined that the HST would add over two thousand dollars in new taxes to closing costs. These taxes are in addition to the Land Transfer Taxes which exist for both the Province and the City of Toronto. OREA calculated that, in total, the HST would add $313 million annually in new taxes to resale home transactions.

They laid it out in the following table:

Based on a $360,000 resale transaction:

                                                                 Current Tax                            New Tax                             Total HST Payable

Mortgage Insurance Premiums                     $752.40                                   $470.25                              $1,222.65

(CMHC premium of 2.75% for a mortgage with a 5% down payment on a $300,000++ home. Currently borrowers pay 8% PST)

Legal Costs                                                 $50.00                                      $80.00                                 $130.00

Real Estate Commission                               $900.00                                   $1,440.00                            $2,340.00

(Commissions are negotiable. 5% was used in this example)

Home Inspection                                          $20.00                                     $32.00                                  $52.00

Title Insurance                                             $24.00                                     $15.00                                  $39.00

                                                                    Total new Tax: $2,037.25

Market analysts are predicting a flurry of activity leading up to the July 1, 2010 implementation date, as buyers and sellers both try to avoid paying the tax. We saw a similar surge in the winter of 2007 when buyers were avoiding the extra Municipal Land Transfer Tax.