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Tag Archives: residential renovation

OHBA fears black market, calls for tax credit

Tracy Hanes – Toronto Star

The Ontario Home Builders’ Asso­ci­a­tion is call­ing on the provin­cial and fed­eral gov­ern­ments to imple­ment a per­ma­nent ren­o­va­tion tax credit or rebate for home­own­ers to mit­i­gate the impact of the har­mo­nized sales tax, or HST.

The imple­men­ta­tion of the HST next July will be like “throw­ing gaso­line on a fire” in fuelling a boom in black-market ren­o­va­tions, says James Bazely, pres­i­dent of the Ontario Home Builders’ Association.

Last week, an OHBA-commissioned Altus report, “Sales Tax­a­tion and the Res­i­den­tial Ren­o­va­tion Sec­tor in Ontario,” con­firmed the OHBA’s fears: More con­sumers will choose to pay cash to avoid pay­ing the tax on ren­o­va­tions, fos­ter­ing an explo­sion in the under­ground economy.

I don’t think peo­ple were sur­prised by this (the report find­ings), but it’s going to be a great tool for us when we go to our elected offi­cials to dis­cuss this, as it’s not just spec­u­la­tion, it’s in black and white,” says Bazely.

The report con­tends that the HST, as pro­posed, will result in rev­enue loss to all lev­els of gov­ern­ment, includ­ing up to $1.6 bil­lion annu­ally in income tax and $298 mil­lion every year in income tax.

Under­ground con­trac­tors do not report cash trans­ac­tions for sales tax pur­poses. The Ontario Con­struc­tion Sec­re­tariat esti­mates that these con­trac­tors cur­rently account for 37% of the sector.

Ren­o­va­tion is a $20.3 bil­lion activ­ity in Ontario each year, with the major­ity of projects (65%) cost­ing $5,000 or less, accord­ing to the Altus report. About 28% of projects are between $5,000 and $20,000.

A typ­i­cal Ontario house­hold spends $5,245 a year on con­trac­tor renovations.

Bazely doesn’t believe elected offi­cials under­stand the mag­ni­tude of how much rev­enue will be lost.

He says unless gov­ern­ments approve a plan to dis­cour­age cash trans­ac­tions, legit­i­mate ren­o­va­tors won’t be able to com­pete with black mar­ket renovators.

The temp­ta­tion will be there for the legit­i­mate ren­o­va­tors to go into sur­vival mode and go into the under­ground econ­omy,” he says.

Bazely cites the exam­ple of Nova Sco­tia, where under­ground renos have flour­ished since the HST was intro­duced more than a decade ago, where only one-third of con­sumers hire legit­i­mate ren­o­va­tors for reno jobs. One-third opts not to do the work, while the other third does it them­selves or hire a ren­o­va­tor for cash.

The OHBA believes a per­ma­nent tax credit would make the HST rev­enue neu­tral, so peo­ple would not be pay­ing more for renos.

Peo­ple are going to want to be enjoy­ing a tax credit and will want a receipt for ren­o­va­tions, which should encour­age a lot of ren­o­va­tors to come out from the under­ground,” says Bazely.

The OHBA this week started dis­cus­sions with provin­cial gov­ern­ment offi­cials about a pos­si­ble rebate or credit and will be push­ing for a meet­ing between Ontario and the fed­eral government.

We see our­selves as facil­i­ta­tors,” says Bazely.

Both par­ties have to come to the table and be in agreement.”

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Con­tact the Jef­frey Team for more infor­ma­tion  -  416−388−1960

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Underground renos to surge with HST

Stephen Dupuis – Toronto Star

The under­ground econ­omy in Canada’s ren­o­va­tion indus­try grew as if it were on steroids after the fed­eral goods and ser­vices tax (GST) was intro­duced in 1991 and there’s no rea­son to believe it won’t grow as quickly after the HST kicks in on July 1, 2010. Unfor­tu­nately, that’s not the only down­side of the pend­ing tax increase on this key strate­gic sector.

While the provin­cial gov­ern­ment has sub­stan­tially mit­i­gated the impact of the HST on new home­buy­ers through the rebate frame­work, the ren­o­va­tion sec­tor was left out­side the rebate struc­ture, com­pound­ing the sin of omis­sion by the fed­eral gov­ern­ment when the GST was intro­duced in 1991.

Accord­ing to a report released by the Cana­dian Home Builders’ Asso­ci­a­tion last week, the res­i­den­tial ren­o­va­tion sec­tor accounts for some $53 bil­lion in spend­ing in Canada, roughly two-thirds of which is paid to contractors.

Provin­cially, Ontario home­own­ers spend about $20 bil­lion on ren­o­va­tion with $14 bil­lion of that through contractors.

Drilling down fur­ther on the Ontario num­bers, the $14 bil­lion is split roughly two-thirds labour and over­head, which is cur­rently PST-exempt, one-third mate­ri­als, which is sub­ject to PST. The PST on mate­ri­als works out to 2.6% of total cost of a typ­i­cal reno.

By apply­ing the HST to labour and over­head, it’s obvi­ous that we are look­ing at an instant cost increase of 5.4% (PST is 8%) with no value added. The CHBA/Altus report cal­cu­lates the impact of that increase to be $757 mil­lion and that’s a huge num­ber that has legit­i­mate, pro­fes­sional ren­o­va­tion con­trac­tors right­fully discouraged.

As one con­trac­tor said to me when the HST was brought for­ward, “prior to the 7% GST, I had clients who would ask if I would con­sider a 10% dis­count if they paid cash. After the 7% GST came into effect, clients changed tac­tics. They dis­liked the GST as much as any­one and would ask if they could pay cash to avoid it. Bingo! The under­ground ren­o­va­tor no longer had to give a dis­count for cash – hence­forth the gov­ern­ment would do it. Clients were now happy sim­ply sav­ing the hated 7%. On July 1, 2010 that incen­tive to pay cash will jump to 13%!”

Unfor­tu­nately, fore­gone sales tax rev­enues are just the tip of the ice­berg as far as the prob­lems with cash deals go.

Con­trac­tors oper­at­ing in the under­ground econ­omy are also avoid­ing every­thing from income tax to work­ers’ com­pen­sa­tion pre­mi­ums to build­ing per­mit fees.

A 2008 report by the Ontario Con­struc­tion Sec­re­tariat esti­mated that the fed­eral gov­ern­ment lost between $225 mil­lion and $298 mil­lion in GST rev­enues annu­ally between 2003–2005 due to under­ground activ­ity in the ren­o­va­tion sector.

Mean­while, both lev­els of gov­ern­ment are los­ing upwards of $1.6 bil­lion in income taxes, and this is all before the HST kicks in.

The CHBA/Altus Report points out many other pit­falls of har­mo­niza­tion, includ­ing the fact that the tax increase under­mines the fed­eral Home Ren­o­va­tion Tax Credit and the federal/provincial home energy retro­fit programs.

The report fur­ther notes that the HST will likely reduce the vol­ume of reno activ­ity, cost­ing pre­cious jobs, while expos­ing home­own­ers to the lia­bil­i­ties and risk of con­duct­ing renos with­out a contract.

The sim­ple solu­tion put for­ward by the CHBA is to main­tain the tax rate on all pro­fes­sional ren­o­va­tions, not just “sub­stan­tial ren­o­va­tions” as defined under the GST, at the rev­enue neu­tral level of 2.6%.

We’re call­ing on fed­eral Finance Min­is­ter Jim Fla­herty to heed that call and urge him to use this win­dow of oppor­tu­nity to get the HST right from a ren­o­va­tion stand­point.

Stephen Dupuis is pres­i­dent and CEO of the Build­ing Indus­try and Land Devel­op­ment Asso­ci­a­tion. The views expressed are those of the president.

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Con­tact the Jef­frey Team for more infor­ma­tion  -  416−388−1960

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  • How to give an older condo unit a facelift

    Renovating a condo differs vastly from renovating a single-family home.

    David Males

    Remember the Toronto condo boom of the 1980s? Back then, condos were springing up in this town faster than dandelions on a spring lawn.

    According to Canada Mortgage and Housing Corp., 58,665 highrise condominium units were built in Toronto in the decade starting in 1984.

    Now, 20-plus years later, those condos might be starting to look a little old. A little tired. In other words, they need a reno.

    Renovating a condo is not the same as renovating a single-family home. There are big differences that can trip you up if one undertakes the process unprepared.

    So why would someone buy one of these old, tired units that needs to be renovated as opposed to a brand spanking new unit with all the bells and whistles?

    Condo buyer Judy Wingham has the answer to that one – and it, of course, starts with location, location, location.

    “We really wanted to be in the St. Lawrence Market area, and there weren’t any new projects in the area when we were looking,” she explains. But, equally important to Judy and her husband, Brian Smith, was the size of the unit itself.

    “How do you find a place big enough when you’re downsizing from a four-bedroom house? We only looked at older units because they’re generally larger than the new ones,” says Wingham about the 1,300-square-foot, two-bedroom condo they purchased.

    Condominium lawyer and Toronto Star columnist Gerry Hyman says buyers (or owners) who are considering a condo renovation need to be very cognizant of the rules that govern renovations in that particular building or risk finding out too late that they can’t do what they were planning.

    Condo buyers should make their agreement of purchase and sale conditional on the examination of the status certificate,” explains Hyman. “This will include a copy of the declaration and the rules. If you sign an agreement of purchase and sale without taking that step, you may be too late.”

    The declaration outlines what is owned jointly by all the owners in the building (called common elements) and what is owned by the unit owner. As a general rule, you can change what you own, but can’t change any of the common elements without the express permission of the corporation.

    This is where what is or isn’t a common element becomes important, because things like windows, balconies and unit front doors are almost always common elements, and many declarations prohibit any structural, plumbing or electrical renovations.

    “People may have carried out renos they shouldn’t have and the corporation can require them to put it back the way it was,” says Hyman. “It’s rare, but it does happen.”

    The condominium rules may also contain additional guidelines regarding how the work is to be carried out. Things like parking for tradespeople, the hours they are allowed to work and disposal of garbage may be spelled out in the rules.

    Because of the added complications involved in renovating a condo, there are contractors who won’t even consider doing that kind of work. Others, like Sandra Baldwin, president and owner of Lifetime Contracting in Toronto, find it’s not that difficult if you have the right approach. She’s completed a couple dozen condo renos in recent years and says the key is to involve the condominium corporation from the beginning.

    “If you approach the condominium corporation right up front, they are usually very helpful and try to accommodate you,” explains Baldwin.

    She gives condo clients a detailed written estimate that they can give to the corporation, along with a covering letter, so they can seek approval long before the work begins.

    For her, the biggest difference in condo vs. single-family home renos is the time factor.

    “Getting materials and debris to and from the unit – that’s a big hassle,” she explains. But, on the plus side, building permits are often not necessary, as they are often not doing work that involves plumbing, electrical or structural elements.

    I, too, have found that the timing issue is the most difficult to manage when renovating a condo. Many corporations will have set hours that tradespeople can work – usually from 9 a.m. to 5 p.m. – which means that I can’t just schedule trades to work a few extra hours if the job gets behind. Parking can also be a pain as many buildings only have one or two (if any) service parking spaces and these are snapped up early. Most experienced contractors will build an allowance for parking fees into the original quote or contract.

    While Brian Smith and Judy Wingham did their homework before purchasing, there were still a few surprises along the way.

    “We couldn’t do pot lights because the ceiling above is a cement slab,” explains Smith. “Of course, that makes sense, but it’s not something you necessarily think about right away. And, all the structural walls in our unit are concrete slab as well, so you can’t even put in a new plug. It made planning more challenging.”

    Waste removal was also a big challenge. During the renovation process, Smith negotiated bringing in a dumpster, but the corporation would only allow it to be on site for one day – meaning all the waste had to be stored in the unit and carted out all at once.

    “You can’t dirty the hallways or the elevators either,” explains Smith. “An awful lot of care had to be taken at every step of the process.”

    Every room of the couple’s condo was tackled, with new trim work and painting throughout, new hardwood floors in the main living areas, new tile in the entry, kitchen and bathrooms. Both bathrooms and the kitchen were also completely renovated and a den was created where there was a solarium. The price of the reno ran about $120,000.

    Another big challenge is trying to change the location of things like sinks and toilets when you can’t touch the plumbing behind the walls. In Judy and Brian’s kitchen, for example, the pipes were extended behind the cabinets to move the sink and dishwasher to their new location.

    The ensuite bathroom was more challenging. To move the toilet, a step up was built so that the new drain could slope properly to the old drain location. To minimize the visual impact of this step, a half-height wall was added between the toilet area and the rest of the bathroom, adding more privacy in the process.

    To replace the bathtub with a built-in shower, the new shower was located so that the existing drain from the bathtub could be used without raising the floor level or drilling for a new drain.

    The costs for these kinds of changes is comparable to those incurred in a traditional renovation, it’s just the methodology that differs. (Of course, the condominium management was consulted before proceeding.)

    Smith and Wingham have some words of advice for those considering a condo reno: Be flexible, work with a contractor you can trust and make your decisions on time.

    “That was what really surprised me, how quickly we had to make decisions,” said Smith.

    “We were on a tight timeline (two months) and we had to get out there and choose the tile, granite and fireplace surround on time, or it would have held up the whole project,”says Smith.

    Condo owners considering a renovation need to make sure they hire a professional who has done condo work in the past, says Baldwin.

    David Males is president of Northern Edge Construction Services, a residential renovation company, and chairman of the BILD Renovators Green Committee. For more information, go to www.noredge.com.

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    Contact the Jeffrey Team for more information  -  416-388-1960

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