News
The Effects of HST
June 8th, 2010July 1st is Approaching Quickly!
Nineteen years after the implementation of GST, we are now entering a new era – HST. In Ontario, as of July 1st, 2010, this “harmonized sales tax” will be a combination of the 8% provincial sales tax and the 5% GST, resulting in a 13% tax. But how much will this “new” tax actually affect us?
Most goods are already subject to both PST and GST. These items will not be affected by HST. Where HST will hit us the most is on services that we currently only pay GST on. Some of the areas that we currently pay 5% tax on that will be changed to 13% include: electricity and heating, internet access, services from a contractor, air, bus and rail travel, gasoline, gym memberships, golf green fees, children’s lessons (with the exception of music lessons), haircuts, funeral services, legal fees, new homes over $400,000 and real estate commissions. (For a full list of what is affected and what is not, refer to: http://www.rev.gov.on.ca/en/taxchange/pdf/taxable.pdf .)
Note that resale homes will not be subject to HST. Where you will experience HST in a residential real estate transaction is on the services associated with it: legal fees, appraisal fees, home inspection fees, moving costs, high ratio mortgage insurance premiums and real estate commissions.
Impact of HST on the Sale of a Home
Example 1: Between January 1st , 2010 and May 31st, 2010, the average sale price for a resale home in Milton was $390,000. The table below indicates the additional costs that you would pay on the sale of a home with the price of $390,000. The implementation of HST will result in $2,219.84 of additional taxes. (This works out to be 0.57% of your original purchase price.)
| Cost (Before Tax) | Current Tax Paid | Total New Tax Paid | Difference | |
|
Mortgage Insurance Premium(1) |
$10,188.75 | $815.10(2) | $1,324.54 | $509.44 |
|
Legal Fees |
$1,000.00 | $50.00 | $80.00 | $30.00 |
|
Real Estate Commission(3) |
$19,500.00 | $975.00 | $2,535.00 | $1,560.00 |
|
Home Inspection Fees |
$400.00 | $20.00 | $52.00 | $32.00 |
|
Title Insurance |
$480.00 | $24.00 | $62.40 | $38.40 |
|
Total |
$31,568.75 |
$1,884.10 | $4,103.94 | $2,219.84 |
Notes:
(1) CMHC premium of 2.75% for a mortgage with a 5% down payment on a $390,000 home.
(2) Currently only PST is paid on high ratio mortgage insurance premiums.
(3) Based on 5% real estate commission.
Example 2: The average sale price for a home in rural Milton between January 1st, 2010 and May 31st, 2010 was $808,000. The table below indicates the additional costs that you would pay on the sale of a home with the price of $808,000. The implementation of HST will result in $4,437.85 of additional taxes. (This works out to be 0.55% of your original purchase price.)
| Cost (Before Tax) | Current Tax Paid | Total New Tax Paid | Difference | |
|
Mortgage Insurance Premium(1) |
$21,109.00 | $1,688.72(2) | $2,744.17 | $1,055.45 |
|
Legal Fees |
$1,000.00 | $50.00 | $80.00 | $30.00 |
|
Real Estate Commission(3) |
$40,400.00 | $2,020.00 | $5,252.00 | $3,232.00 |
|
Home Inspection Fees |
$400.00 | $20.00 | $52.00 | $32.00 |
|
Title Insurance |
$480.00 | $24.00 | $62.40 | $38.40 |
|
Total |
$63,389.00 | $3,802.72 | $8,240.57 | $4,437.85 |
Notes:
(1) CMHC premium of 2.75% for a mortgage with a 5% down payment on a $808,000 home.
(2) Currently only PST is paid on high ratio mortgage insurance premiums.
(3) Based on 5% real estate commission.
Is the sale of your home subject to HST?
If you have a firm deal in place for the sale of your home prior to July 1st, 2010, then you are only required to pay GST on your real estate commissions. (This is because 90% or more of the agent’s services were completed before the implementation of HST.) Note that the closing date of your home need not be prior to July 1st to avoid HST on real estate commissions! However, other fees (mortgage insurance premium, legal fees, etc.) will be subject to HST if the service occurs after July 1st.
