HST info

Everyone wants to know about the HST...

To understand what's going with the HST we must break down its effects into 3 categories: New Construction, Resale, and Fees. New Construction This category is the one that is likely to be most influenced by the change from GST to HST. All new residential construction will now be taxable at the 12% rate rather than the previous 5%. To offset some of this, the government has introduced a New Housing Rebate which will significantly reduce the burden of the additional tax up to a house value of $525,000. For new construction valued at over $525,000, the purchaser will receive a flat rebate of $26,250, meaning the increased burden of this tax will only affect those purchasing a new home over $525,000. But that's not the end of the story. The changeover from the GST & PST to the HST should result in significant real savings to the construction industry as they can now receive government rebates on their inputs. These cost savings will, through time, result in lower overall construction costs, which should help mitigate some of the additional tax burden for those buying new construction valued at over $525,000. In fact, for those buying property valued at less than $525,000, the overall cost may eventually be lower than before the HST is implemented. Resale The HST should have little to no effect on the resale market as 'used' homes are not subject to GST and will not be subject to HST. Instead, the government has a Property Transfer Tax, which will remain the same: 1% on the first $200,000; 2% on the balance. Fees HST will apply to the fees associated with a transaction and will lead to a slight increase in these fees. That said, many of the fees currently associated with transacting a home already charge both GST & PST so there will be no change; however, the taxes on a realtor's fees will increase by 7%. For a $1,000,000 home, real estate commissions typically average 2.95%. A tax increase of 7% on this amount means that the typical realtor commission should increase by roughly 0.2065%. Taking all of this into account, it is clear that the HST will have a negative effect on the market, but only slightly so. Depending on your asset class, you may even end up ahead. And taking into account the fact that the GST was lowered from 7% in 2006 to 5% today, consumers are definitely ahead compared to that time. To calculate how the HST will affect a typical new house price, please visit macrealty.com to use the HST calculator. Remember though, there are many subtleties to the HST laws and its associated transition rules. An accountant will likely be needed to answer these more detailed questions.

THE WAITING IS OVER. INTEREST RATES MOVE UPWARD!

Today, the Bank of Canada raised the overnight rate by 1/4%. The most common opinion is, absent one more increase in July, this should be it for quite some time. The variable rate mortgage remains a viable option.

This is from the Globe:

Bank of Canada raises interest rates

Last Updated: Tuesday, June 1, 2010 | 9:11 AM ET T CBC News

The Bank of Canada did the expected and raised its benchmark interest rate to 0.5 per cent on Tuesday, the first rate hike in nearly three years.

The bank moved its overnight lending rate 25 basis points higher, up from 0.25 per cent.

In doing so, Canada became the first G8 nation to raise rates after an aggressive round of cuts at the start of the recession in 2008, and after most developed economies showed signs of rebounding in 2009.

"The bank has decided to raise the target for the overnight rate to ½ per cent and to re-establish the normal functioning of the overnight market," the bank said in a statement.

The rate has been frozen at 0.25 per cent since April 2009, when the bank made a "conditional commitment" to keep rates at such an extraordinary low as long as economic circumstances continued to warrant the shot in the arm of easy lending.

After recent reports showed Canada's economy expanded at a 6.1 per cent annual pace in the first quarter, and created a record 109,000 jobs in April alone, the bank decided the time was right to act.

It's the first time Mark Carney has opted to raise interest rates since he became the governor of the Bank of Canada more than two years ago.

There were concerns that the deteriorating economies of Europe and elsewhere might compel the bank to stand pat, but the bank clearly paid more attention to undeniable signs of local strength.

"The domestic case for higher rates simply overwhelms concerns about the international backdrop," BMO chief economist Doug Porter said.

Who wants to return to the days of 22% interest rates? The BoC decision to sightly increase interest rates appears to be the optimal choice in this writer's opinion. A little pain now is preferable to major pain later.