Who’s in charge of the future? Surprised to learn it’s you?
The control, seems frustratingly out of reach as governments react to tough times by spending billions in taxpayers’ money-often in ways that make life more difficult for those who can least afford it.
If you agree that times have changed and we must change with them, does that mean you are becoming more involved in making sure that politicians know what you think? Complaining to each other at the local coffee shop instead of communicating your ideas by phone, email and letters to your elected representatives got us where we are today. Why not decide to be heard, so you’re not forced to live with harsh economic realities created, directly and indirectly, by just-in-time political decisions and election-enhancing indecision.
Countries and cities should last forever. Citizens want to live in these places for the many decades that make up their lives. Yet, politicians act and react in time frames of months with their prime goal their own re-election. See a disconnect here?
In one example, real estate ownership is under siege in Ontario, particularly in Toronto, and it may stay that way if the public does not champion the cause of home ownership. The Toronto Real Estate Board (TREB), Canada’s largest real estate board, is currently battling on two fronts-municipal and provincial-to protect real estate affordability. Real estate professionals often step forward to lead the charge against political misjudgement, but they need public backing to correct political error.
TREB continues to battle against the new Toronto Land Transfer Tax (LTT), which adds an additional tax of about 1.1 % to the purchase price, believing that LTT has put home ownership out of reach for cash-strapped purchasers.
According to recent CD Howe Institute research entitled Sand in the Gears: Evaluating the Effects of Toronto’s Land Transfer Tax : “We assess the effects of the LTT on the volume of sales and on prices using data on the sale of single-family homes in the Greater Toronto Area between January 2006 and August 2008. Our data show that the LTT caused a 16 percent decline in the number of single-family homes sold after January 2008 and a 1.5 percent reduction in house values. We calculate that in its first year, the LTT will cause a reduction in household mobility-at least 3,500 families in the municipality of Toronto will stay in houses from which they would have otherwise moved-and an average reduction in selling price of about $6,400 per house.” In another example, the Ontario 2009 Budget announcement of harmonization of the 8% Provincial Retail Sales Tax (PST) and the 5% Federal Goods and Services Tax (GST) was a shock to many in the midst of the recession which has hit car-dependent Ontario very hard. Harmonization constitutes an increase in taxes since many goods and services previously exempt from PST will now be taxed at 13%.
“People who are supporting Harmonized Sales Tax (HST) make the argument that it is good for business-it’s more efficient,” said Von Palmer, TREB’s Chief Government and Media Relations Officer. “As apposed to taxing every step of the production process, you tax the back-end in terms of the consumer, so you simply shift where the tax takes place. And so, business groups will argue that it is more productive for them to do it that way, and we’re not disputing that. I think the problem we have with Harmonized Sales Tax is when it comes across as a tax grab, which it actually is. In terms of the housing industry, there are two things we are concerned about. One is the actual price of the new home. With the new tax, you’re going from 5% GST to 13% tax….Our other concern is the closing costs on all properties.”
The HST on a new home sale of CAD$500,000 would be CAD$65,000, an additional CAD$40,000 on the sale. Palmer explains that the tax increase also affects closing costs for new and resale properties, including legal fees, real estate commissions, home inspection fees, title insurance, and mortgage insurance premiums when the down payment is less than 25% down. Harmonization will result in an additional CAD$2,000 in closing costs on a CAD$360,000 sale, the average in Greater Toronto.
Currently, four other provinces have harmonized taxes: Nova Scotia, New Brunswick, Newfoundland and Labrador, and Quebec.
Palmer summarizes the HST impact this way: “In the haste to bring in a Harmonized Sales Tax that is more friendly towards business or productivity or whatever it is you want to call that, I think you equally have to realize that there is a flip side. There is impact on another group and it is called the consumer. It is the same consumer that at the end of the day has to buy the products. And in this case, it’s the consumer that has been hit hard by this tax when we talk about things like real estate and housing. There’s no doubt-you can do the math whichever way you want-the reality is it’s a cash grab, it’s a tax increase. They can argue that the intent is not to make this a tax increase-it’s supposed to be revenue neutral. We’re not seeing that because, on the closing end alone, the additional tax on those closing costs we talked about amounts to about CAD$300 million province wide-just on resale. That’s how much additional revenue they collect just from harmonizing that sales tax.”
Accounting firms like PricewaterhouseCoopers Canada are among the organizations armed with clear thinking and practical suggestions in the face of harmonization. Tax fairness ideas abound if you take the time to search them out.
According to Finn Poschmann, author of the March 20, 2009 CD Howe report, Sales Tax Reform in Ontario: The Time Is Right: “Shocks to the real estate market sector are even easier to mitigate. The federal system offers a phased rebate that reduces GST payable for new houses selling for less than CAD$472,500. That threshold has not moved since the GST’s introduction: a considerably higher rebate threshold could apply federally and provincially. Ontario could further reduce any GST-induced shock to the housing market by eliminating its inefficient Land Transfer Tax, which is an impediment to economically rational resource allocation.”
Since Ontario’s HST will not be activated until July 1, 2010, there is time for our raised voices to push for crucial exemptions or better approaches.