Who will be on the hook for the new tax?
Carolyn Ireland, Globe and Mail
One Home Turf reader is steeling himself for a tense weekend.
This fellow, who lives in Toronto, agreed to buy a newly-built home for approximately $465,000. As luck would have it, he signed up just before details of the Ontario government budget were announced on March 26th. The scheduled closing for the house falls after July 1, 2010.
He’s scrambling now to get the closing date moved forward but he’s not sure if he’ll be successful. He has to decide this weekend whether to go ahead with the purchase.
As most interested people will know by now, the harmonized tax announced on budget day will blend together the federal goods and services tax of 5% and the provincial sales tax of 8%. That means that the sales tax will now be tacked onto some purchases that used to be exempt, including new homes.
Purchasers of homes valued at below $400,000 will get a break, but those who buy a home for a price above $500,000 will pay full freight. There’s a murky area between those two prices – right where this reader falls.
There’s also no clarity about the date. Will the tax apply only on deals that are agreed to after July 1, 2010, or will this reader – who signed up before budget day – be on the hook?
Nobody knows yet. Even Ontario finance minister Dwight Duncan and his people have yet to work out the details, as we learned when he took questions from readers on this topic on globeandmail.com earlier this week.
So our reader is in a bind: The higher tax could increase the cost of his new house by more than $30,000. Buyers who are pre-approved for a mortgage, he points out, may find that they can’t get additional financing if they have to fork over a lot more at the time of closing.
Nicole Ross, a real estate lawyer with Wright & Associates in Toronto, has received lots of calls from her clients so she put in a call to the Ministry of Finance this week. They told her they haven’t got a timeline yet.
Ross says we may be able to look to the implementation of the Municipal Land Transfer Tax, as the Miller tax is more officially known, for guidance.
In that case, the land transfer tax came into effect on Feb. 1, 2008. It was “grandfathered” in, in that any agreement of purchase and sale signed before Dec. 31st, 2007 was completely exempt from the new tax. Agreements entered into after Dec. 31, 2007 for deals that closed on or after Feb. 1, 2008 were subject to the tax.
If the HST comes to pass, Ross speculates, we could see a similar structure. Perhaps the mandarins will pick a date a couple of months in advance and subject all deals signed after that date to the harmonized tax.
Ross stresses, however, that she’s only offering a possible scenario based on the precedent of the land transfer tax.
“I know it’s hardly the reassurance that your readers are looking for, but it’s all the information available for the time being.”
The Toronto Real Estate Board, which represents real estate agents, finds the talk of higher taxes maddening.
Spokesman Von Palmer points out that at least the lack of details means there is still time for citizens to influence the outcome.
Our reader, meanwhile, is predicting lawsuits if people have to walk away from a deal because they can’t get financing because their purchase price and closing costs are inflated by taxes.
And he’s worried about his own situation.
“This is not a risk that I can afford to take.”
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