Sutton Group - West Coast Realty

Housing is an important basic need and a significant part of the BC economy. Last year, consumers invested $31.3 billion in residential real estate across BC and, in 2007, MLS® home sales generated $2 billion in economic spin-offs and 28,800 jobs.

Clearly, there will be some benefits for BC businesses when the HST comes into effect next year. Unfortunately, the biggest losers will be consumers and especially those consumers who want to purchase property. Already, BC has the highest home ownership costs in the country. RBC Financial Group’s first quarter 2009 survey of housing affordability showed that almost 60% of the province’s median pre-tax household income is required to cover home ownership costs.

And consumers are already paying an extra tax on real estate transactions – the Property Transfer Tax. In the last fiscal year (2007/2008), consumers paid over $1 billion dollars in Property Transfer Tax to the provincial government. The HST is yet another tax on home ownership.

The provincial government has recognized that the HST would create a disincentive to purchase a new home or build new housing for the rental market. This is why it is offering a partial rebate of the provincial portion of the HST for new homes up to $400,000 and a flat rebate of $20,000 for homes over $400,000. According to the government, this $400,000 threshold reflects last year’s median price of new urban housing in BC. The logic is that, on average, people purchasing houses at or below the median price would "generally be fully protected from a tax increase."

Regardless of any rebate, the costs associated with buying and selling any type of real estate will still increase, because the HST will apply to services that were previously exempt. For example, assume that someone who buys a $450,000 resale house on June 30, 2010 pays about $16,500 in closing costs, such as appraisals, home inspections, survey certificates and REALTOR® fees. With the introduction of the HST, that same person would pay over $1,100 more due to tax.

When you look at the price of a home that better reflects the reality of the Lower Mainland, the numbers are even higher. For example, a person would pay approximately $32,500

more in tax on a $750,000 newly constructed home under the HST, even with the $20,000 rebate.

What can the provincial government do to minimize the tax burden on people who want to purchase real estate?

First, ensure that real estate transaction costs, such as fees for home inspections, appraisals and REALTOR® commissions, are exempt from the provincial portion of the HST.

Second, increase the $400,000 rebate threshold on new housing. This is especially important in BC’s highest priced markets. The rebate threshold should also be indexed for inflation and adjusted annually.

Third, the flat rebate of $20,000 needs to be amended, as it does not do enough to offset the additional tax that people purchasing new homes over $400,000 will pay. One option is to convert the flat rebate to a fixed percentage rebate.

Finally, because consumers will continue to pay the Property Transfer Tax, the provincial government should further seek to decrease its impact.

Ultimately, this issue should be about fairness. As it stands, people who want to buy homes will shoulder an unfair portion of the HST. The tax further contributes to pushing housing beyond the reach of consumers, rather than finding ways to increase affordability. It also penalizes businesses looking to purchase buildings or new facilities to support their growth.

We look forward to working with the provincial government to find a workable solution that will benefit British Columbians.