Benefits of Harmonized Sales Tax for Families

Benefits for Families and Consumers

Right now, provincial sales tax (PST) is paid by every business at every step in the creation of a consumer product. You may not realize it, but the PST is charged multiple times during the production of a product before it reaches the store.

Every business involved in the creation of a product pays the PST on almost all of the things they buy to carry on their business - from the extraction of the raw material through manufacturing or processing, as well as the warehousing, transportation, distribution and final sale of the product. For example, a business pays tax on their office equipment, supplies and furniture, telecommunications equipment and services, vehicles, energy to heat and light buildings and power equipment, cash registers, shelving and all the other materials and equipment they use to operate their business – and the cost of that embedded PST is passed on to you, the consumer.

Under the proposed Harmonized Sales Tax (HST) most taxes paid on business inputs are refunded to the business, and those savings can be passed on to consumers:
- When three Atlantic provinces adopted HST, consumer prices fell, according to a study by University of Toronto professor Michael Smart.
- When the BC HST is implemented similar price reductions are expected.

HST Exemptions:
Under the proposed HST, a number of products will be exempt from the seven per cent provincial portion of the BC HST:

- Gasoline, ethanol, diesel and biodiesel when used in motor vehicles.
- Books
- Children- sized clothing and footwear
- Children’s car seats and car booster seats
- Diapers
- Feminine hygiene products

All other items that are currently zero-rated or exempt from the GST will also be zero-rated or exempt from the HST.

New Home Rebate:
- A rebate will ensure that, on average, purchasers of new homes up to $400,000 do not pay more tax due to harmonization than is currently embedded as PST in the price of a new home. Purchasers of new homes above $400,000 will be eligible for a rebate of $20,000 (i.e., a rebate on the first $400,000 of value).

- Buyers of used homes will NOT pay any HST.

Low Income Credit
- Low income families and individuals will receive an annual B.C. HST Credit of $230 for individuals with income up to $20,000 and $230 per family member for families with incomes up to $25,000, paid quarterly with the GST credit. This will benefit over 1.1 million British Columbians.

Residential Energy Rebate:
- A provincially-administered point-of-sale rebate for residential energy will ensure the HST will not increase consumers’ costs for oil, electricity, natural gas or propane used to heat or power homes.

For more information on the Harmonized Sales Tax, pleases visit:
http://www.gov.bc.ca/hst


Krista and Sherri
lawlessbrown.com

Benefits of Harmonized Sales Tax

Benefits for Home Buyers

Currently, new homes in B.C. are subject to the GST, and also carry an estimated two per cent embedded tax as a result of the PST paid on most construction materials.

Under the proposed Harmonized Sales Tax, new homes will be subject to the HST but the embedded PST will be eliminated because builders will be able to recover the tax paid on materials through input tax credits. Used homes will not be subject to the HST.

An essential part of the BC HST will be a tax rebate for new homes.

- A rebate of up to $20,000 will ensure that purchasers of new homes up to $400,000 do not pay more tax due to harmonization than is currently embedded in the price of a new home.
- New homes above $400,000 will be eligible for a $20,000 rebate.
- New home sales will be subject to the HST
- Sales of used homes will not be subject to HST.

For more information on the Harmonized Sales Tax, pleases visit:
http://www.gov.bc.ca/hst

www.lawlessbrown.com

BUY NOW! HST is on the Way!!

Ontario and B.C. homebuyers face a big tax hike

Garry Marr, Family Man, Financial Post
Published: Friday, September 04, 2009

The new harmonized sales tax being proposed in British Columbia and Ontario may end up being an overall wash for some consumers but anyone buying a new house is about to get dinged. Canwest News Service The new harmonized sales tax being proposed in British Columbia and Ontario may end up being an overall wash for some consumers but anyone buying a new house is about to get dinged.

The new harmonized sales tax being proposed in British Columbia and Ontario may end up being an overall wash for some consumers but anyone buying a new house is about to get dinged.

The HST met with some resistance from the real-estate sector in Canada's largest province when it was first proposed earlier this year but the government agreed to some concessions.

New homes in Ontario currently just face a 5% goods-and-services tax, which builders have buried in the price of the home since the tax was introduced 19 years ago. Starting on July 1 of next year, new houses would face a combined HST which would be 13% in Ontario.

With new-home sales slowing after a seven-year bull run, the last thing the industry needed was something that would curtail activity further.

There was a sigh of relief when the government agreed to grandfather from the tax any deals signed prior to the date the announcement was made - June 18, 2009. Deals closed before July 1, 2010 would also not face the tax.

Everybody else was in trouble. So the government came up with an exemption from the added tax on the first $400,000 of any new home, meaning consumers outside of Toronto were for the most part unaffected.

Despite the government's "generosity," about 40% of people buying a new home in Toronto are going to face a major tax hit. That's the percentage of new homes that sell for more than $400,000.

On a $500,000 home in Toronto, the HST will mean $6,000 in new taxes. Here's how it works. The HST means an additional $40,000 in new taxes on that home, based on 8%. Builders get an estimated 2% tax credit on supplies, lowering the bill to $30,000. Minus a $24,000 tax break on the first $400,000 and you get to $6,000.

So who is going to pay for that $6,000? As the price goes up, the tax bill gets higher. It's $36,000 for a $1-million home.

"I don't know this for a fact but I don't think any builder will make [the HST] an extra closing cost because they imbedded the GST for so long," says Stephen Dupuis, chief executive of the Toronto-based Building & Industry Land Development Association.

Maybe that extra tax is not added on to the sticker price, but at some point the consumer is going to pay. Maybe through a higher price, cheaper materials or fewer finishings thrown in.

"A tax like this is going to be passed on to the consumer over time and the consumer is going to lose," says Brian Johnston, president of Monarch Corp., one of Toronto's largest home builders.

Economist Benjamin Tal, of CIBC World Markets, predicts the tax will have an impact on housing sales. "It's not like something you can brush under the carpet," says Mr. Tal. "There will be reduced demand."

He predicts the industry will build more houses without all the finishings. That will leave the consumer to do work on the black market with contractors to avoid the HST. That's what happened in the Maritimes, where the HST has been in play for years, said Mr. Tal.

"This will give a boost to the under-the-table transactions. Is that an optimum thing?" says Mr. Tal.

It's no wonder British Columbia's housing industry is fighting the HST tooth and nail. It's not interested in the Ontario compromise of an exemption on the first $400,000 of a home. B.C will provide a $20,000 tax break on the first $400,000 of a purchase, the amount being lower because the province has a 7% sales tax.

"There is no single family home here you can buy at that price," says Peter Simpson, chief executive of the Greater Vancouver Home Builders' Association. "They've taken what happened in Ontario and thought it would fly here. They underestimated the pushback on HST out here."

The provincial budget released this past week gave few hints the province might back down on taxing the industry, other than a throwaway line that it would work with industry groups to minimize the impact of the HST.


Mr. Simpson says he's not interested in any compromise, including any compromise that might grandfather housing now under construction from the new tax.

"I won't even talk about that. It will mean we've given in and we're not," says Mr. Simpson.

Good luck. Something tells me the cost of housing in B.C. is going to rise.

Tax Hits Hard on New House Sales

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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Krista and Sherri
lawlessbrown.com