It's tough to find many Canadians who are happy with the introduction of the Harmonized Sales Tax (HST). Never fear, we're providing you with some tips on how it could affect your home buying decision.
News & Views
Fear can be paralyzing for home and condo sales. And as recent events have shown, fear of the HST and rising mortgage interest rates have been blamed for the recent slowdown in real estate sales across Canada.
The introduction on July 1, 2010 of the HST (or the combination of the GST with the PST) has impacted various service sectors - housing being one of them. The HST not only will impact home purchase prices, it will also affect many other home services, regardless if you buy new or existing. For example, if you're selling, commissions are now subject to the provincial portion of the HST. Closing costs such as legal fees, title insurance, and home inspections are also subject to HST.
But, don't let this alarm you if you're thinking of buying a home, as it doesn't affect every home purchase in the same way.
Not all home buyers, in particular those in Ontario and British Columbia, understood how the HST would apply to home purchases. With so many Canadians looking to buy in 2010 because of historically low mortgage rates, a lack of understanding about the HST caused much anxiety. Although the HST only applied to new home purchases, the lack of understanding created an over-heated market ahead of its implementation, with demand far exceeding supply. As a result, existing and new home prices increased to record levels (in particular, among existing homes where multiple offers were the norm), increasing the cost to own a home.
With the frenzy over, prices have started to come down for home sales, making the dream of owning your own home more affordable. And now that the dust has settled, in the next two issues we'll shed some light on the more important facts you need to know about the HST and its impact on new home purchases. In the meantime, here are some highlights:
- All new homes purchased in Canada are subject to GST and have been for years. This will continue in all provinces where there is no HST.
- New home buyers have lived with the HST in New Brunswick (13%), Nova Scotia (15%) and Newfoundland/Labrador (13%) since its inception. As of July 1, 2010, new home buyers in BC (12%) and Ontario (13%) now also have HST applied to their new home purchases. For BC and Ontario residents: the HST is the combination of the GST (5%) and your old provincial sales tax (7% in BC, 8% in Ontario).
- As part of its 2009 budget, the federal government introduced the GST/HST New Housing Rebate program to help stimulate new home construction during the recession. The rebate, equal to a maximum of $6,300, reduces the GST portion (or what is the federal portion of the HST) from 5% to nearly 3.5% for homes purchased under $350,000. The rebate also applies (to a lesser degree) to new home purchases between $350,000 and $450,000. To obtain the GST/HST rebate for new home purchases, complete form GST190 and submit it with your tax return.
- For more information about the rebate and eligibility criteria, go to http://www.servicecanada.gc.ca/eng/goc/gst_new_housing.shtml.
In our next issue, we'll cover off the applicable provincial rebates available to new home buyers as well as first time buyers that could help you in making your decision to purchase new or existing.
Tips:
Don't be immobilized with fear! Now that you know that HST may not dramatically affect your home purchase, it's time to look at ways to prepare for your big home buying event. Houses aren't cheap, so make sure you have as much knowledge as possible before you lay down your cash. We have a few good tips to help make this process run smoothly for both first time buyers and repeat buyers. Take a look to make sure you have your bases covered.
No one wants to walk into a transaction and make a blind leap. If you know your stuff and are confident about it, you can really get the most out of your home purchase, instead of being left with the feeling that you've just signed your life away. Here are some tips that can help you make a better informed decision.
- First things first, it's important to understand what lenders are looking for. Your credit history is an important factor so start off by finding out what your credit score is. You can do this by visiting Equifax Canada at www.Equifax.ca, or TransUnion Canada at www.transunion.ca. Once you know where you stand with your credit, you'll know if it needs some repair before you go house hunting. You should look for any inaccuracies or anything else that needs to be sorted out. Also, sometimes having no credit can be a bad thing, so you may need to find out how to establish a credit history as your first point of action.
- Keep up with real estate trends with free sources of information about mortgage interest rates (like our Interest Rate Monitor). Web sites like CMHC (www.cmhc-schl.gc.ca) and Genworth (www.genworth.ca) also have some great insights into the world of mortgages.
- Find out what rebates are available to you in your province. Some rebates offered are the First Time Home Buyer RRSP Plan (HBP), First Time Home Buyers' Tax Credit (HBTC), GST/HST rebates and many more. Do your research and see what rebates you can get to put towards your home purchase.
