Response to those who have e-mailed about resale homes
Resale homes not subject to Single Sales Tax
Since rumours about the introduction of a Single Sales Tax in the 2009-10 Ontario Budget began, a number of people have e-mailed me with a similar, often identical text. Let's summarize the points in these e-mails:
If you've sent one of these, or are asked to, read this first:
Some 130 OECD countries already have a value-added tax on sales transactions for goods and services similar to the proposed Single Sales Tax. Houses sell all around the world. Ontario in particular and Canada in general are among the very few jurisdictions in the world that levy two taxes on the same transactions, payable to two different levels of government, using two sets of incompatible rules. C'mon, it's time to get into the 21st Century.
Somebody either never read the proposal, or has never worked with the existing GST. On everything you (and your real estate agent) spend to do business, you essentially deduct what you paid in sales tax from what you charge your customer when you make the final sale.
Right now, all these individual lumps of PST are 'embedded' in the agent's costs. The proposal allows for these 'embedded' costs (called "input tax credits" in tax-speak) to flow through, and be deducted by the real estate agent from the gross sales tax collected. So the tax change is actually on the profit margin of the real estate agent.
The same rules apply to these "soft costs" as to any other product or service in any other type of business. Some, or much, of this tax is already 'embedded' in the price you pay for the service. Unless the service provider is going to look at his or her larger gross margin, and just 'take the money and run,' market forces and competition will work to minimize any price changes. Don't get spooked by hysterical rhetoric.
Planning on buying a home in the near future? There will be no change in taxation until July 2010. Resale homes, now or after July of 2110, will never be subject to the Single Sales Tax. And the sales commission is paid by the vendor, not the purchaser. So, if you are buying a resale home, keep on making your best deal. The proposed Single Sales Tax won't affect you.
With 15 months between the Ontario Budget announcement, and the implementation of the proposal, it's plenty of time for new home builders to streamline their cost accounting to factor in the new tax, and get rid of the old PST. It also means getting rid of a whole shelf of tax rules, makes the home builder's accounting simpler, and removes the 'embedded' PST in the price of a new home. Lots of things that go into your new home will actually get cheaper. The tax you will pay after July 1, 2010 will only be paid once ! And you won't be taxed on tax, the way you can be now.
In fact, transition help for consumers and businesses is built right into the Ontario Budget. Read about the rebates to businesses and consumers.
Benefits will be delivered to eligible Ontario tax filers age 18 and over in each of June 2010, December 2010 and June 2011, totalling a maximum of $300 for single people and $1,000 for single parents and couples. See the above link for more details.
I respect everyone's right to be apprehensive when the government you sent me to serve makes a change in something that touches every one of us: like taxation. Ontario of 2009 is not the Ontario of the early 1960s, when the current PST was introduced. This is a more sensible way to levy taxes, and it makes businesses that export more competitive. It lets firms that do business overseas work in Ontario like they work elsewhere in the world. Whether you end up preferring the old way, or the proposed new one is your choice. I hope this helps you make a more informed choice.