Provincial Land Transfer Tax and HST

Since the concept of harmonizing the provincial PST with the federal GST was first announced by the Ontario government, the Ontario Real Estate Association (OREA) has been aggressively opposed to the proposal on the basis that it will make the prospect of home ownership more difficult for Ontario residents.
In addition to the estimated $1,500 in additional taxes that home buyers will on average incur upon the completion of a home purchase, there is also the added burden of additional taxes on the ongoing operational costs of a home. It is estimated that the annual hydro cost per home will increase by $100 and the annual cost for natural gas will go up by $125 driven by the combining of the two taxes into the new HST which takes affect July 1st of this year.
To offset the increased taxes resulting from the onset of HST, OREA is proposing that the province reduce the provincial land transfer tax that is payable by buyers on the closing of their home purchase.
The median home price in Ontario for 2009 was just over $318,000. Currently, the provincial land transfer tax payable is 0.5% on the first $54,999 of value, 1.0% from $55,000 to $250,000 and 1.5% on $251,000 to $400,000. The land transfer tax payable on that median purchase transaction of $318,000 would be $3,250. Under the OREA proposal no tax would be payable on the first $55,000 of value and the 1.0% and 1.5% tax brackets would be reduced by 0.5% each. The resulting land transfer tax payable under this new format would be $1,658 a saving of $1,591.
I guess the $64,000 question is will $1,500 in additional taxes resulting from the implementation of HST on July 1st deter buyers from fulfilling their dream of home ownership. I suspect that $1,500 is probably a fairly common monthly payment for many people in Ontario currently paying rent or making a mortgage payment. As such in the overall scheme of things it's not a pile of money.
The OREA proposal is admirable and it is estimated it would cost the province about $311 million annually in lost tax revenue. At the same time if its implementation would enhance home ownership across the province, other tax revenue would be realized as a result. On average, studies show that home buyers in Ontario spent approximately $32,000+ in the 3 years following a property purchase. This includes money spent on appliances, landscaping, and other improvement costs and services. Whether OREA's proposal is seriously considered or not, only time will tell if the implemnentation of the HST on July 1st will harm the current resurgence of real estate sales activity across the province.
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