HST Hysteria

THE VIEW FROM OAK PARK
The Official Krisztina Blogsite

Announced in our last fiscal budget, starting in June 2010 and creating quite a stir, Ontario will soon join Quebec and the Atlantic provinces in harmonizing the 5% GST and the 8% PST into a 13% HST. The move is getting mixed reviews, particularly in the housing sector, with headlines reading “Yet another demand on Ontario’s already overtaxed homeowners.” On a single detached house priced at $360,000, HST could add $2325.25 in new taxes to closing costs. Or it could add $1731 to the price of new homes. But let’s be realistic here. Is this really making resale less affordable? I say NO! Agreed, services currently only charging 5% GST (Home Inspections, Real Estate Commissions, Mortgage Insurance Premiums and Legal Fees) will now have to charge 13% in HST. But my position is three-fold. First, with the drop in mortgage rates, and the current environment of giving credit-worthy homeowners opportunities to renegotiate and shop their mortgages, inclusive of penalties, housing is already much more affordable. Secondly, housing demand and supply are equalizing – meaning those that really want to, or need to sell, are pricing their homes appropriately and fairly in order to attract buyers. Sellers who were looking for the quick investment turnaround are rethinking their positions. Thirdly (and probably most importantly), service pricing will adjust. Real Estate Agents will negotiate for a selling price that reflects the HST. Many lawyers will offer (or are currently offering) flat service fees. And so on down the line. The bottom line is that the harmonization of the taxes mean that small business owners will benefit and can pass on that savings. Take my own situation: I currently pay PST on a number of things for my business – gas, car maintenance, office supplies etc. Prior to harmonization, that 8% was considered a cost of doing business. It was an unrecoupable cost. With the harmonization, although I will have to cash flow the outgoing HST, I will be able to balance that with the incoming HST and recoup any difference. I feel that this is good for manufacturers, good for big business and good for small business. The Atlantic Provinces harmonized in 1997, and not much happened. The only issue was cash flow for paying the tax. Yes, businesses will have to change their accounting systems and Point of Sale systems to accommodate the new tax, but the government is offering up to $1,000 in Small Business Transition Credits (for those businesses with less than $2M in revenue). On an even more personal note, my husband works in the film industry where one project can be on the hook for thousands of dollars in unrecoupable PST. They pay it on rental cars, gas, service, props, set decorating pieces, wardrobe etc. The harmonization would allow a film to actually hire an extra person or two with the cost savings!

So in closing, I do not see this as a poison pill for the Real Estate industry. In the end it will be…as Shakespeare once said, ‘Much ado about nothing!!’

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