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Blended tax drives up costs for both new and resale home buyers in Ontario

Blended tax drives up costs for both new and resale home buyers in Ontario
Thu Mar 26, 6:44 PM
By David Friend, The Canadian Press

TORONTO - Homebuyers in Ontario will face higher costs for most newly built houses and also on the services used to close deals on resold homes as part of the Ontario Liberal government's plan to harmonize the GST and provincial sales tax.

In its budget Thursday, the provincial government released details of an initiative, which will apply a 13 per cent tax to new homes sold for more than $400,000 starting next year.

The plan will also provide a rebate for new homes sold between $400,000 and $500,000, though it will fully tax the value of new homes worth more than $500,000.

To put the 13 per cent tax into perspective, a high-end house in Toronto worth $1 million would add $130,000 in taxes on the property, before factoring in provincial and local land transfer taxes. Then, the buyer would also have to pay taxes for other associated services.

Resold homes are exempt from the sales tax on their value, but buyers will still face higher taxes on all the costs associated with closing the deal, such as legal fees, movers, real estate commissions and home inspection charges.

The shift will be particularly hard on Toronto residents because they're still reeling from a city land transfer tax introduced last year on top of the provincial land transfer tax.

"The timing of this tax is lousy at best," said Toronto Real Estate Board spokesman Von Palmer. "The reality is that the timing is never good, but this is bad."

Palmer said that could cause some Ontario residents to become more reluctant to buy.

"We know that housing is the economic engine. Every housing transaction you take out of the economy you lose $33,000 in economic spinoffs - furniture, appliances, renovations," he said.

A recent study from the Building Industry and Land Development Association said that the tax will add an average $46,676 to buying a new home in Toronto - costing home buyers $2.4 billion more each year.

However, the industry group noted there were some measures in the budget to cushion the tax, including a rebate of part of the provincial portion of the tax for new homes priced up to $500,000.

"Harmonization of PST and GST without any offsetting measures by the provincial government could have ripped $2.4 billion out of the pockets of new homebuyers, slamming the homeownership door shut in the face of many Ontarians," said Stephen Dupuis, president and CEO of the house building group.

However, the Ontario Real Estate Association expressed concern because resale will face more than $2,000 in extra charges related to closing fees.

"Now is not the time to be erecting barriers to home ownership," said Pauline Aunger, president of the association, which represents the province's 47,000 real estate brokers.

"We need consumers to invest in housing to help get our economy going again."

Currently, Ontario consumers pay only the five per cent GST on those services, but would face a 13 per cent tax under the new system.

The association said home sales in Ontario fell 29 per cent in February from the same year-ago period.

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