Many homebuyers and sellers ask about the HST tax on resale homes in Ontario. First, some background information:
The Ontario Government enacted legislation which implemented the HST tax, which took effect on July 1, 2010.
The HST tax combined the Provincial Sales Tax of 8% percent with the Federal GST Tax of 5% percent, to create a new “harmonized” total tax of 13% percent. A tax increase occurred because the new 13% percent amount became applicable to many real estate services which previously only had one or the other tax applied.
HST TAX ON REAL ESTATE
The HST has resulted in a 13% tax on new home construction, but this article will concern itself with those ancillary costs pertaining to the buying and selling of resale residential real estate properties in Ontario…
First, the good news….there is no HST tax payable on the sale of a resale home (residential). So the single largest dollar amount exchanged is not taxable under HST.
However, under the harmonized sales tax (HST), home buyers and sellers now have to pay extra tax on a range of services associated with the real estate transaction: services such as legal fees, moving costs, real estate commissions and home inspection fees. Until the HST took effect, consumers only paid the 5% Goods and Services Tax (GST) on these services.
In a nutshell, since July 1, 2010, if you are a seller, there is a 13% percent tax payable on the real estate commission you pay – formerly there was only the 5% percent GST payable on this fee. Lawyers’ fees are also subject to the 13% percent HST. One bit of good news – the cost of a Condominium Status Certificate has remained the same; while there now is HST at 13% instead of GST at 5%, there was no increase in the legislated maximum total amount of $100.
If you are a buyer, any Home Inspection you pay for is subject to the 13% percent HST. And so is the cost of your lawyer, or any movers hired.
TAX ON CMHC FEES
If you are a buyer, and are putting less then 20% percent down payment on your purchase, the federal government requires that you pay an “insurance” premium on your loan, typically called the CMHC (Canada Mortage and Housing Corporation) fee. This fee, which varies depending on the amount of downpayment that you have, the length of your loan amortization, and the type of employment that you have (self employed pay a higher premium), is typically simply added to the total loan amount by your bank, saving you from having to pay it in full, up front.
There is, however, also a tax payable on the CMHC premium itself, which is due in full on the day of closing. This tax on the CMHC premium for “high-ratio” mortgages was formerly always taxable at the PST amount, and the good news is, through some miracle, the tax payable on the CMHC fee has remained at the PST amount only. This is one to look out for, as it is an important part of your closing costs…for example, if your CMHC fee is, say, $7000.00, this dollar amount gets added to the overall loan with the bank, and adds to your monthly loan carrying costs by a small amount, maybe approximately $20.00 per month…the tax on the $7000.00 fee, however, would be $560.00 (Ontario sales tax is 8%, 7000 x’s .08 = $560.00), and this $560.00 would be payable in full to your lawyer, on the day of closing. So remember to budget accordingly.
With the introduction of the HST, whether you are buying or selling a resale home in Ontario, many of the costs associated with real estate transactions have changed.
A press release from the Ontario Real Estate Association summarized some of these changes which have taken place – the example that they used was for a resale house priced at $360,000, and it was determined that the HST would add over two thousand dollars in new taxes to closing costs. Please note, these taxes are in addition to the Land Transfer Taxes which exist for both the Province and the City of Toronto. OREA calculated that, in total, the HST would add $313 million annually in new taxes to resale home transactions.
CURRENT TAXES PAID, VERSUS THE NEW COMBINED HST TAX PAYABLE, ON A HYPOTHETICAL $360,000 REAL ESTATE TRANSACTION:
Table 1: HST and Resale Homes
Current Tax HST Tax
Taxable Service Payable New Taxes Payable
Premiums(1) $752.40 — $752.40
Legal Costs $50.00 $80.00 $130.00
Fee/Commission $720.00- $1,152.00- $1,872.00-
$1,080.00 $1,728.00 $2,808.00(2)
Home Inspection $20.00 $32.00 $52.00
Title Insurance $24.00 $15.00 $39.00
Total New Tax:
(1) CMHC premium of 2.75% for mortgage with a 5% down payment on a
(2) Real estate commissions are negotiable or may be a flat fee.
Estimated range of 4% to 6% used.
HST ONTARIO TAX ON RESALE HOUSES
The HST Tax on resale homes in Ontario is now an established part of the cost of buying and selling real estate in the province. We hope you have found this guide to HST on resale homes useful. Any questions? We are here to help! Just email us via the chat function on the main page..
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author: Randy Selzer