Oakville Ontario News, Articles and Reviews

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Effective July 1, the much-talked-about Harmonized Sales Tax (HST) will come into full effect in Ontario, blending the GST and the PST into a single 13% tax.

For businesses, the HST brings relief, as it transfers some burden to consumers. Under the new law, businesses will be able to recover the HST they pay to suppliers and on other goods and services.

For consumers, the HST means that items previously exempt from PST will now be taxed a total of 13%, costing the average household an additional $738 annually. Under the new law, 17% of consumer purchases will be affected, including real estate commissions.

When it comes to real estate transactions, there are two ways HST will have an impact: Firstly, on the price of a new, from the builder, home, secondly, on commission payable on resale homes.

For new homes purchased from a builder, HST will be applicable on the purchase price of the home, albeit new homes purchased as primary residences across all price ranges will qualify for a rebate of up to $24,000 of the 8% provincial component of the HST. The rebate is calculated from a stepped scale, and a series of thresholds. For a more detailed explanation of the intricacies of the program, see http://www.rev.gov.on.ca/en/taxchange/homebuyers.html

For resale homes, GST and, now, HST apply to real estate commissions only, as it is a service being provided to the consumer, not to the price of the home. Let’s look at a scenario to analyze the actual impact of this change on a resale home. We’ll be selling a $400,000 home, paying 5% commission total (2.5% for listing agent, 2.5% for buyer’s agent):

In this case, the additional cost to the Seller is $1,600 or 0.4% of the sale price of the home. From this, we can come up with a rule of thumb for a typical transaction where 5% is the total commission charged (2.5% for listing agent, 2.5% for buyer’s agent), the impact of HST will be $400 for every $100,000 of property value.

While it is an additional cost to sellers, one that is not welcomed by most (all) accounts, the actual impact of the HST is small in comparison to the value of your home. There are a plethora of other factors that can cost you more on the sale of your home than this tax, and that should always be kept in perspective. A dirty carpet, a cluttered closet, a messy yard, to mention a few, will all cost you more than 0.4% of your home’s sale value.

NOTE for Buyers: If you are purchasing a resale home, you do not pay tax on it! This is a common misunderstanding when speaking of how HST will impact real estate.

Ontario Premier Dalton McGuinty says that the HST is a sacrifice consumers must make in order to invest in a better future. McGuinty says that the new tax will help businesses stay competitive, a big step in building a stronger economy. Services that will see increases in taxation include dry cleaning, landscaping, electricity and heating, esthetics, and fitness training. Hotel rooms, magazine subscriptions, gasoline, vitamins, athletic facility memberships, and cigarettes are some of the products that will now be taxed at 13%.

Ontario isn’t the only province to adopt a harmonized sales tax. HST was implemented in Newfoundland, New Brunswick and Nova Scotia in 1997. In British Columbia, a 12% HST will go into effect on July 1.

To learn more about how the HST will affect businesses and consumers, visit the Ontario Ministry of Revenue’s online resource at www.rev.gov.on.ca/en

Tags: HST, Oakville real estate

About the author: Alexx Coelho

Alexx is a full-time real estate Broker whose goal is to assist you in buying or selling real estate. He does this by taking the time to understand what it is you want to achieve, then applying his knowledge, experience, expertise and his team’s efforts to help you reach your goals.