Along with its more universal application than the old tax system, the 1997 HST legislation created a great deal of confusion as to what is taxed and what isn’t.
Ontarians have now had 17 years to become acclimatized, but the seemingly whimsical list of what HST applies to and what it doesn’t still challenges us. For example, you pay HST for your hairdresser and barber’s services and yes, for legal services as well, but not for prescription drugs. HST is not charged for grocery items, but it is for any sweets, treats or prepared food in your shopping buggy.
Applying the HST to new home purchases
The confusion also spread to the housing industry, and initially with some panic: after all, 13% of a home valued at say, $800,000 is a lot of money, so let’s have a look at how the HST works:
First of all we need to separate new home purchases from resale homes. Yes, HST is charged on the purchase of a new home. However, there are rebates available: on the provincial part of the tax, up to a limit of $400,000, as well as a less generous federal rebate for homes priced less than $450,000. These clearly won’t ease the pain of buying a new home in the GTA’s hot market, but any help is good for the buyer.
Let’s have a closer look at how these rebates work. The rebate of the 8% provincial portion of the HST is 75% of that $400,000, which yields a maximum rebate of $24,000 from Ontario. By comparison, the maximum available federal rebate is $6,300 for homes priced less than $350,000. Less is available for homes priced from $350,000 to $450,000 which is where the limit tops out.
These rebates might have already been factored into the house price, enabling the builder to advertise a lower price so remember to discuss this with your builder. If you are personally applying for the rebate, remember that you only have two years in which to apply for it, so do the paperwork as soon as possible. Also, remember that governments rarely if ever give something for nothing. In other words, you just might need to budget for that rebate being folded into your taxable income in the coming year.
The HST kinder, gentler resale home purchase
The resale market is much kinder to your wallet, but it is not entirely an HST-free zone. Returning to the example above, that HST for that $800,000 home purchase is exactly zero on a resale, which comes as a huge relief to home buyers, and certainly is an incentive for purchasing a resale, though obviously, it should not be your only consideration.
As a resale purchaser, however, you will pay HST on the services required for you to complete the sale. Legal fees, for example, your real estate agent’s commission, inspections, surveying if needed, moving costs and so on are all subject to the HST. And of course, any renovations, repairs, gardening and landscaping you might undertake are subject to the HST.
The total cost of such charges should be much less than the HST for a new home purchase, but the resale buyer still needs to budget for the additional 13% for these services. For new homes, work with a reliable agent/builder. For resales, work with a licensed real estate agent and your lawyer. For the legal aspects, please call us at Howard Nightingale Professional Services, centrally located in Toronto, for an initial consultation at 416-663-4423 or toll free at 1-877-224-8225, and visit our helpful website at www.howardnightingale.com.