Secondary homes will bear primary cost of HST
Roberta Avery – Yourhome.ca
Unless you are planning to make it your permanent home, purchasing a new ski chalet, a new weekend condo, or a new cottage will get a lot more expensive when the harmonized sales tax comes into effect July 1. The tax will add tens of thousands of dollars to the cost of a new second home.
Last summer, after vigorous lobbying from developers, the Building Industry and Land Development Association (BILD), and the Ontario Home Builders’ Association, the province backtracked on charging the HST on the full cost of a new home priced at more than $400,000 by introducing a housing rebate of up to $24,000. The catch is that to qualify for the rebate, the home has to be a primary residence.
“If it’s a new ski chalet, it will be subject to HST with no rebate,” says Scott Blodgett of the Ministry of Finance.
The same goes for a new cottage on a Muskoka lake, a new condominium at developments such as the Village at Blue Mountain or Red Leaves in Muskoka, a new home in a golfing community or any new home in Ontario, if it’s not going to be a primary residence.
“There’s no doubt that it’s a blow for the industry,” says Frank Giannone, president of FRAM, the company developing the Shipyards Harbour Residences in Collingwood. “It’s going to have a significant effect on the second-home market.”
It’s long been a tradition in the four-season recreational area around Collingwood for people to buy a home to use first as a weekend place with plans to move in fulltime when they retire.
“The intention to use the residence as a primary place of residence upon some more distant occasion such as retirement does not qualify that residence as the primary place of residence,” states a memorandum supplied by Blodgett.
Giannone says the HST amounts to a “luxury tax” on new second homes. “It’s going to have a big impact outside the GTA,” he says.
The province’s rebate system follows a formula using input tax credits, and the net result is that the HST will add $6,000 more in tax to a $500,000 new home, condo, cottage or ski chalet purchased as a primary residence, and $30,000 more tax to the same new home purchased as a second home. Higher priced new homes will be subject to even more tax.
Resale homes won’t be subject to the HST even if they are to be used as second homes. But Andres Paara, the president of the Georgian Triangle Real Estate Board, which includes Collingwood and the Blue Mountains, says there will also be an impact to the resale market as it will add, on average, about $1,500 to the cost of buying a home as GST will be added to real estate commissions and home energy audits, as well as legal fees and appraisals.
At the Orchard, a 130-home development of semi-detached and townhomes at the base of the private Craigleith Ski Club and within walking distance of Blue Mountain, the majority of purchasers are “weekenders,” although some plan to live there permanently in the future, says sales manager Jennifer Wootton.
By last fall, news of the impact of the HST on second-home buyers was beginning to sink in, says Wootton. “It spurred a lot of sales activity,” she says.
Most of the remaining inventory was snapped up by skiers as soon as the first snow began to fall.
“Our sales have been very active since October,” says Wootton.
Many purchasers at the Shipyards downsized to a condominium and work part-time in the city, while living fulltime at the Shipyards.
“Determining which is the primary residence is a fine line, but it’s up to the customer to make the decision,” says Giannone.
Thanks to a grandfather clause that exempts homebuyers from paying the provincial portion of the single sales tax if they entered into a written agreement of purchase and sale on or before June 18, 2009, Shipyards purchasers Anne Lockie and Fred Promoli will avoid having to pay tens of thousands of dollars in HST on their new home, although their $1-million plus home won’t be finished until the fall.
“All I can say about the harmonized sales tax is that there has been very little information about the impact to new homebuyers and I suspect many are going to get a surprise,” says Lockie, who is executive vice president with the Royal Bank of Canada and president and CEO of Royal Mutual Funds Inc.
“It could make for some ugly closing discussions,” she says.
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