February 21, 2009
Harmonized tax would hit renovations, resales
The already battered real estate industry had reason for concern when
Premier Dalton McGuinty said last month that "we owe it to ourselves to take a
good, long hard look" at harmonizing the GST with the Ontario provincial sales
tax.
In his column in this
section on Jan. 31, Stephen Dupuis, president of the Building Industry and
Land Development Association, pointed out that buyers of new homes would be hit
particularly hard if Ontario harmonized the PST with the federal GST.
On a $350,000 new home, he wrote that the consumer would have to pay an
additional $17,920. But it's not just buyers of new homes who would be affected
by a merging of the two taxes. Buyers and sellers of resale homes would also be
hurt because a harmonized tax would apply to many services that are currently
exempt from PST – including legal fees, real estate agent commission, renovation
services, land survey reports, home inspections, landscaping and house cleaning
services. Also affected would be the cost of labour for installations or
repairs, including additions, kitchen renovations, driveways, roads, fences,
swimming pools and patios.
Assuming no change in the provincial sales tax rates, the seller of a
$350,000 resale home would get hit with an additional $1,400 in tax on a real
estate agent's 5 per cent commission, plus a new 8 per cent provincial tax on
moving expenses, legal fees, accounting and bookkeeping fees, renovations,
painting and other services which are currently exempt.
I agree with Frank Giannone, president of the Ontario Home Builders'
Association, who calls harmonization a "poison pill" for housing. It would also
have a serious impact on access to justice for ordinary Ontarians as their legal
fees would jump an additional 8 per cent.
Of course, none of this matters to the Ontario Chamber of Commerce and other
business groups who are pushing for harmonization. According to chamber chairman
Len Crispino, if the taxes are blended, Ontario business stands to save an
estimated $100 million. That saving would be dumped onto the wallets of hard-hit
Ontario consumers.
Toronto home buyers have still not recovered from the imposition of the
"Miller bite" land transfer tax last year. In a market where the volume of home
sales has dropped by almost half over the first month of 2008, and house prices
have softened considerably, the last thing Ontario needs is a new 8 per cent tax
on legal fees, agent commission and other costs related to the purchase and sale
of new and resale homes.
The home renovation industry could also be badly affected by a harmonized
tax. In a pre-budget submission to the Minister of Finance last month, the
Ontario Home Builders' Association noted, "The renovation industry is already
plagued by the growing underground economy with the GST acting as the catalyst
for the `cash deal'. Many legitimate renovation businesses would be in serious
peril if they were to add an additional 8 per cent in PST onto their quotes when
competing with the black market."
In case anyone thinks that the chances of a harmonized PST and GST are
somewhat remote, they have only to look at the website of the Canada Revenue
Agency to see that the Ontario Ministry of Finance and the Canada Revenue Agency
have already teamed up to offer dozens of joint seminars on a harmonized sales
tax all across the province throughout 2009. The effort and cost put into
creating these seminars is a clear indication that harmonization is in the
cards.
The last word on harmonization goes to Toronto real estate guru Barry Lebow,
who is a land economist, appraiser, arbitrator and educator with 40 year's
market experience. When I asked him what he thought about tax harmonization, he
replied, "I hate the idea as a small businessman and as a professional.
Harmonization only works well for singing groups!"
Bob Aaron is a Toronto real estate lawyer and a director of the Tarion
Warranty Corporation. He can be reached by email at
bob@aaron.ca, phone 416-364-9366 or fax
416-364-3818. Visit the column archives at
http://aaron.ca/columns/toronto-star-index.htm for articles on this and
other topics.
|
