Wednesday, December 30, 2009

New Homes and HST

When the new HST kicks in on July 1st 2010, new homes in Ontario that are currently subject to the 5% Goods and Services Tax will now have the 13% HST applied. How does this affect new home pricing?
Most developers currently list their newly built homes for sale with GST “included in” the purchase price as psychologically, it’s better than hearing the price is $350,000 + GST which adds another $17,500. Further to this new homes purchased as the buyer’s principal residence offer a partial rebate of GST where the maximum sale price of a property does not exceed $450,000. Typically, builders have this rebate factored into their profit margin on the home and the GST rebate is assigned to the builder by the buyer on closing. The HST treatment of real estate transactions including new homes will generally follow the current GST format. Sales of new residential housing will be subject to and will qualify for a rebate(s). Further, the rebate will now be available whether the new housing is to be owner occupied or rented which is an advantage to buyers over the current program.
Under the new format, new homes in Ontario will be eligible for a rebate of 75% of the PST component of the HST paid to a maximum of $24,000. In some other provinces where the PST and GST have been harmonized, there is no provision for a portion of the PST to be rebated back. In reviewing various examples of new home sales both before and after the July 1st 2010 HST implementation date, new home prices should marginally decline. This stems from the fact that there is currently no provision for a builder to obtain a rebate on the PST paid on materials that go into the home. Example: a $300,000 home (GST included) purchased before July 1st 2010 with the GST rebate applied and assigned to the builder means the buyer pays a net purchase price of $290,698. If the same $300,000 home (HST included) is purchased after July 1st 2010 the builder receives a larger rebate amount thus resulting in a net purchase price to the buyer of $285,171 and difference or portential saving of $5,527. Hopefully this type of saving gets passed onto the purchasers of new homes.
The final taxation rules and implications have not yet been finalized so only time and human nature will dictate what really happens.

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Rick relocated to Collingwood from Toronto in 1985 through a transfer with Goodyear Canada. In 1987 Rick was recruited by a major client of Goodyear’s, managing their Canadian business based in Barrie before moving to Chicago in 1992 as Vice President of Sales & Marketing. Upon returning to Canada in 1996, Rick ran an industrial products manufacturing company in Stratford, Ontario. In 1998 Rick returned to Collingwood with his two children. Rick is a licensed real estate Broker with Royal LePAGE Locations North in Collingwood and holds his MVA designation (Market Value Appraiser-Residential). He is an active volunteer in the community serving several years on the Board of Directors with the Collingwood Chamber of Commerce as Treasurer, 6 years on the Board of Directors for the Southern Georgian Bay Association of REALTORS® of which he is the Past President (2008) and currently serves on a committee with the Ontario Real Estate Association. Rick is a diverse executive manager with extensive experience in strategic planning, manufacturing, finance, human resources and quality assurance management.