Monday, December 28, 2009

Real Estate Commissions and HST

Further to my prior posting re: the forthcoming implementation of HST in July 2010, here are some points that consumers need to be aware of regarding how the HST will affect real estate transactions.
When the HST becomes effective July 1, 2010, real estate commissions which are currently subject to the 5% Goods and Services Tax will transition over to the new HST meaning that real estate commissions will now be subject to the new 13% tax rate. From the consumer seller's perspective, this will increase their tax burden by 8%, the current rate of provincial sales tax in Ontario. As an example, on a $250,000 sale with a 5% selling commission, the HST payable will increase from $625 to $1,625.
While REALTORS® will continue to be responsible for the collection of HST on the closing of a transaction as we currently are for GST, the new HST offers a distinct advantage. As a GST registrant, REALTORS® get to claim the 5% GST we pay on business related expenses while the 8% PST we pay on eligible expenses is lost. Under the new format, REALTORS® will claim an HST input tax credit of 13% not the current 5% which will result in cost savings for us. By rights, this cost savings should be passed on to our clients and I for one plan on incorporating this saving into my seller commision plans for 2010 onward.
Consumers need to be aware that real estate commissions are completely negotiable. From a consumer's perspective, REALTORS® often fail to demonstrate a level of service and overall value commensurate with the commission (fee) charged on a given transaction. The arrival of HST will no doubt present a further challenge to those REALTORS® that both fail to deliver a level of service, knowledge and value for the fee charged as well as those that fail to acknowledge the cost savings that we as HST registrants will realize with the new tax. The same applies to lawyers, home inspectors and others involved in the real estate sale process.
If you plan on selling your home in the latter half of 2010, make a mental note to ask the REALTORS® you interview how they have adjusted their commission structure to compensate for the tax savings they will now be realizing as an HST registrant.

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Royal LePAGE Locations North (Brokerage)

330 First Street, Collingwood, ON L9Y 1B4


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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.