GST reduction will create healthy savings for home buyers
During the last federal election campaign, now-Prime Minister Stephen Harper stated that “a home-owning nation is a strong nation.”The Prime Minister went on to say that “new home construction shows a community on the move. The sight of work crews building new neighbourhoods is a sign of our hope and our optimism about a better future for our families.”
It’s even better when the leader translates the rhetoric into action, which is exactly what Harper did with the 1% cut to the GST, which takes effect today.
What does the GST reduction mean for buyers of new homes? It means that the GST, embodied in the purchase price of your new home, is now 6%, not 7%, and that translates into healthy savings for homebuyers.
Since virtually all home builders in the GTA sell their product GST included, the tax reduction will be factored into the builder’s costs at the project outset and reflected in the price list.
In today’s ultra-competitive market, where there are more than 300 home builders with almost 800 projects in the GTA, market forces will ensure that the savings accrue to the homebuyer.
It is important to note, however, that while the GST is being reduced by 1%, the savings on homes priced below $450,000 will be less because of the fact that the GST is already reduced by the new housing rebate of 36% of the tax, payable to a maximum of $7,560.
Using the example of a $300,000 home, the actual tax reduction is $1,920, a not insignificant amount, particularly for first-time homebuyers. The tax savings on a $400,000 home, which is subject to a lesser rebate (the rebate is gradually reduced on homes prices between $350,000 and $450,000), is $3,405.
For homes priced above $450,000, where there is no GST rebate available, the tax savings is the full 1%, so $4,500 or more, depending upon the selling price.
If you’re kicking yourself for having purchased your new home prior to this GST reduction, you should instead be patting yourself on the back.
That’s because under the transitional rules, purchasers who bought a new home prior to the budget, as long as it was on or before May 2, who close on or after July 1, 2006, are eligible for a 1% adjustment.
The way this works is that although the house is closing after July 1, when the tax rate will be 6%, the builder will have to remit 7%, with the purchaser being able to claim the 1% transitional adjustment.
First, you have to close on your house. Second, you will need to complete Form GST 193. The form is available from the Canada Revenue Agency, via the website at http://www.cra-arc.gc.ca (click on Forms and Publications) or you can also call 1-800-959-2221.
And, if you’re doing the math and have already spent 1% of your purchase price over and over in your mind, please don’t forget that this transitional adjustment is also net of the GST rebate.
The transitional adjustment is formula-driven on homes priced up to $450,000. If you paid $300,000, you are looking at $1,920. Above the threshold of $450,000 you can figure on a straight 1% windfall because there is no applicable GST rebate.
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Contact the Jeffrey Team for more information
