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April 2013 Newsletter www.carmenleal.ca

     
 
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April 2013

 
 

April 2013 Market Update

With the reintroduction of the GST/PST tax regime on April 1st, we have received some questions about how this will affect the real estate market. The short answer is: There will be a minimal effect; some people will win, while others will lose. However, we must break down its effects into 3 separate categories: New Construction, Resale, and Fees.

New Construction

This category is the one that is likely to be most influenced by the change back from HST to GST. All new residential construction will be taxable at the 5% rate rather than the previous 12%. However, the government will also be eliminating the New Housing Rebate, and adding a 2% transitional tax (for a total 7% rate, down from 12%). With the lower tax burden, there should be a net savings for buyers of newly constructed real estate in B.C.

But that's not the end of the story. The change back from the HST to the GST & PST will result in higher construction costs as government rebates for input costs are eliminated. That means that while the tax burden may go down on these homes, the cost base will go up.

The net result is that for homes valued at more than $525,000, the overall cost will likely go down, while homes that are valued at less than $525,000, the overall cost will likely increase.

For more details, see the government's GST/HST info sheet: http://www.cra-arc.gc.ca/E/pub/gi/gi-132/gi-132-e.pdf.

Resale

The change back to GST should have little to no effect on the resale market as 'used' homes are not subject to HST and will not be subject to GST or PST. There is no change to the Province of B.C.'s Property Transfer Tax, which will remain the same: 1% on the first $200,000; 2% on the balance.

Fees

The change back to GST will apply to the fees associated with a transaction and will lead to a slight decrease in these fees. That said, many of the fees currently associated with transacting a home already charged both GST & PST so there will be no change; however, the taxes on a realtor's fees will decrease by 7%. For a $1,000,000 home, real estate commissions typically average around 2.95% of the purchase price. A tax decrease of 7% on this amount means that the typical realtor commission should decrease by roughly 0.2065% of a home's purchase price.

Taking all of this into account, it is clear that the change back to the GST will have a positive effect on the market, but only slightly so. That said, depending on your asset class, you may end up behind.

To learn more, please feel free to contact me at the address above.

 
 
 
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