By Roszan Holmen - Victoria News
August 15, 2009 8:00 AM
House buyers will take the biggest hit when the provincial government harmonizes the provincial sales tax with the federal goods and services tax next summer. Consumers across B.C. are opposing a planned seven per cent tax increase on select services and goods, including new house purchases.
In cities such as Victoria, Vancouver and Kelowna, where new houses cost more than $650,000 on average, the tax promises to cut the deepest. “This is really a big, big tax on the middle class,” said Casey Edge, executive officer of Canadian Home Builders’ Association, Victoria branch. Edge objects to what he calls the triple taxation of new houses.
The provincial government imposes a property transfer tax on a property both when it is sold to the developer, and again when it is sold to the consumer. The new harmonized sales tax will add yet another level of taxes to the sale. Last month, the B.C. government announced its intentions to harmonize the provincial sales tax with the federal goods and services tax, as of July 1, 2010. The idea is to eliminate the hassles of paying and administering two different taxes.
While some business organizations applaud the move, many consumers and industries see it as a hit to their pocketbook and their bottom line.
The reason?
Many goods and services, which are currently exempt from the PST, will soon be subject to the newly-combined 12 per cent harmonized sales tax. New houses fall into this category, so to ease the burden, the government introduced a rebate to keep taxes roughly the same.
The rebate, however, caps out at $20,000, so any new house worth more than $400,000 will be hit with the tax. In Greater Victoria, that’s the majority, as the average new single-detached home sells for $668,655.
The B.C. Real Estate Association has crunched the numbers to calculate a net tax impact of $13,433 on the average home. Add to that several thousand dollars in taxes on services associated with buying a home. Property inspection and appraisal, the real estate commission and the lawyers fee will all be taxed at 12 per cent rather than five per cent starting next summer.
How all this will affect home sales and prices is yet to be seen.
“It’s too early to say exactly what the impact will be on the number of sales as well as resale home prices,” said Bryan Yu, economist with the real estate association. “Until we know what the transition rules will be, it’s impossible to predict the impact.” The new house market, however, will be more affected than the resale house market, he said. Edge called for consultation with the industry before the government moves ahead with the tax.
“HST is a consumption tax. It’s not appropriate to put it on very large investments where people take out amortized loans because then it turns into a monster and the costs virtually double for the consumer,” he said. “One of the few manufacturing industries creating local employment is homebuilding and it doesn’t appear to be any recognition of this.”
Stephen Spector, president of Certified General Accountants of Canada, B.C. branch, said the benefits of HST will outweigh the costs. Consumers will pay more but there is relief for people of low-income, he pointed out. “If somebody is spending nearly a million dollars (on a house) don’t tell me they can’t afford an extra $20,000. “As an economist I applaud this move simply because a single value-added tax is a much more efficient tax,” he said.
Businesses, Spector added, will also benefit because they’ll be able to claim rebates on the provincial portion of their taxes, rather than just the federal portion.
In a competitive market, consumers can choose those businesses that pass the savings along, he said.
rholmen@saanichnews.com
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