Darren posted today about trying to understand the HST. Personally, I’m not really one to get all up in arms over new taxes, and like him, I’m really just trying to understand what’s going on.
I am concerned, though, about the tax’s impact on the new housing market – it sounds like new homes that are already barely within reach of most buyers are about to get a LOT more expensive. Of course, people care most about what impacts them, and Neil and I are casually looking for a 2nd property to purchase as a rental, so this will certainly affect that decision.
I know not everyone needs to buy a brand new or significantly renovated home. Except it’s going to be harder to purchase them, because I think they’re about to get a lot more expensive as demand for non-new (therefore non-HST applied) houses grows. I can’t see this new tax structure being any good for the struggling construction industry, or plans to increase density in the city with construction and renovation.
According to the BC Gov’s Q&A page on the HST (scroll way down) the average home under $400,000 won’t have any tax impact, and homes over that will receive a flat $20,000 rebate.
Both the Government and the Globe are using some very shady math to come to their conclusions.
The actual tax rate and rebate consumers can expect to see is a 5% rebate, up to $20,000.
Currently the GST is at 5% – so rebating 5% means there is actually a 7% tax on new homes. The Gov’t claims that there is an “embedded 2% PST surcharge on new homes now” because PST is paid on many construction materials.
They fail to acknowledge that new home prices are not simply Cost+Fixed Margin; a new home will sell for whatever the market can bear, so the embedded 2% can’t fairly be taken into consideration when a consumer is purchasing. The buyer of a new home (especially a condo in Vancouver) can’t exactly say to the builder “show me all your materials invoices and choose certain products so I can make sure I’m getting that embedded 2% off the actual value of this place.”
The reality is, consumers are paying 7% tax on the purchase price of new homes up to $400,000.
After $400,000 it get much, much more frightening.
I have no idea what kind of math the Globe & Mail was doing (perhaps more “embedded tax” and the inherent value of the genies built into your walls?), but tax on a brand new $700,000 home looks like this:
Purchase Price: $700,000
HST (12%): $84,000
Max. Rebate: ($20,000)
Total Tax Paid: $64,000
Currently, with just the 5% GST, the purchase tax on that $700,000 home is $35,000
The HST will mean a tax increase of $29,000 – a far cry from the $18,000 the Globe & Mail quoted.
Embedded taxes be damned, speaking for myself, I don’t take them into consideration when looking at real-estate. And I doubt the bank is going to qualify me for a more expensive home based on them either.
What do you think? Have I missed something here, or is it really that bad?