Sunday, December 19, 2010

Harmonized Sales Tax

The provincial government's decision to harmonize the provincial and federal sales taxes into the new 12% Harmonized Sales Tax (HST) removed $2 billion in costs to BC businesses and provide point-of-sale rebates on many important goods and services. You can find out more about the government rationale for the HST here.

However, REALTORS® and BCREA are concerned that the HST has increased the cost of buying and selling all property and have a significant impact on the purchase of newly-built homes. The people of BC are particularly affected since this province has some of the highest priced real estate in the country. The HST is an additional tax burden on BC homebuyers, homeowners and landlords.

Increasing Cost of New Homes

For new homes, under the previous system, only 5% GST was charged on new home sales. Under the HST, implemented on July 1, 2010, new homes are subject to the 12% HST.

To offset the increase in costs, the BC Government is offering a partial rebate of the HST for new housing, intending that new homes up to $525,000 should bear no more tax than under the previous PST system. Homes above $525,000 receive a flat rebate of $26,250. New home sales over $525,000 are impacted, as buyers have to pay an additional 7% tax less the $26,250 flat rebate.

On November 18, 2009 the provincial government announced the HST transitional rules on housing which includes a threshold increase from $400,000 to $525,000, moving the threshold to above the median new home price in the province. According to the government news release announcing the transitional rules, the limit was increased due to feedback from consumers and the industry. To read the news release and backgrounder click here.

For more information and to see the Residential Housing New Housing Rebates and Transitional Rules for BC click here.

Increasing Cost of Professional Services like REALTOR® Commissions

The HST also introduced a new tax on most services provided by GST/HST registrants in BC. As such, service-providers like REALTORS®, home inspectors, and appraisers are required by government to collect and remit 12% HST on their fees. Under the previous system, only 5% GST was charged on professional services associated with real estate transactions. Under the new HST system, the taxes charged on those services jumped an additional 7%, adding to nearly all closing costs.

The bottom line is that the HST has increased the cost of buying and selling all property, and it has a much greater impact on the purchase of newly-built homes. Almost 60% of the average family's household income is required to cover home ownership costs. Now that the HST has been implemented, they're paying even more.

Copyright BCREA reprinted with permission

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