There has been a lot of confusion about how the newly implemented HST affects the purchase of a new, or used home. Many realtors and brokers are pointing their finger at the HST factor for the recent drop in the real estate market. They say that many people simply do not understand what the HST means to them and they are under the impression that this new tax means a substantial increase in the cost of buying a house.
First of all, it's probably important to understand what the HST is all about. The Harmonized Sales Tax, or HST, was put into affect on July 1, 2010 in the Canadian provinces of Ontario and British Columbia only. This new tax combines both the federal goods and services tax (of five per cent) with the provincial sales tax, which is seven per cent in British Columbia and eight per cent in Ontario. The HST combines these two single taxes into one. As well, it is being applied to certain goods and services, while remaining exempt from others. This, perhaps, is where most of the confusion lies.
Most items that were tax exempt before, like prescription drugs and groceries, will remain tax-free. Items that were taxed with both the GST and the PST prior to the HST will remain taxed the same. However, the controversy lies in the 'other' goods and services that were once only taxed the GST, such as everyday products like haircuts and gasoline. Now, as of July 1, they are HST taxed, meaning they are essentially being taxed both the GST as well as the PST. This has caused a significant rise in everyday essentials. So services such as lawyers for instance, were only subject to GST before July 1 but are now subject to both, meaning the full HST is applied to lawyer's fees.
When it comes to buying and selling a home, the mortgage fees and banking fees will remain as before, meaning they are still tax-exempt. One difference, however, will be in the real estate commissions, as they are now subject to the full HST instead of only the GST as pre-July 1. Also, new homes in both provinces will be taxed the HST, but are eligible for tax rebates depending on the cost of the new home. In Ontario for instance, a home under $400,000 is eligible for a rebate of 75 per cent of the provincial part of the tax, up to a maximum of $24,000.
In British Columbia, homes under $525,000 are subject to a 71.43 per cent tax rebate of the provincial portion of the HST while homes over $525,000 can apply for the maximum rebate of $26,250. Something else to factor in is the cost of new appliances, movers, painters and construction workers who are all now on the hook to charge both GST and PST, meaning you, as a consumer, will be fitting the entire HST bill.
Buying a new home may have gotten a little more complicated, or perhaps it has just gotten a lot more expensive for the average person. Being in the market for a new home can be exciting but it something best done with a lot of financial planning.
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