If you’re an Ontarian then you likely already heard about the plans to harmonize the Provincial Sales Tax with GST (resulting in another acronym: HST). This means new homes costing more than $400,000 will be subjected to at least some sales tax (those costing > $500K will be subjected to full 13% tax, instead of 5% like today). On top of that the government still plans to charge these poor souls Ontario Land Transfer Tax. At least they could’ve gotten rid of this, but they decided not to.

I think it means builders will keep the house costs below $400K by building smaller, simpler homes (before taxes and stuff). After all, a $400,000 house will cost you $400,000 but a $500,000 house will suddenly cost $565,000 (yes, you aren’t just taxed on incremental amount about $400,000. The tax is on the entire amount!) This translates to a tax increase of $40,000 due to HST.

So basically expect more postage stamp sized lots and smaller houses with tiny, tiny driveways. Likely narrowed roads as well. If a family needs four bedrooms and at least some backyard then they may just have to look at the resale market.

This may somehow become a good news for existing homes that cost > $500K. Over time market will get saturated with cheaper, smaller homes. A buyer looking for a larger house in GTA (aka, expensive area) with some amenities like hardwood, taller ceilings etc may have very few homes to choose from.

It may be good news for contractors as well. Selling your home and buying a new one suddenly became a lot more expensive (with an additional 8% tax on top of existing expensive taxes and selling costs added.) This means people may just spend money upgrading their existing homes instead of starting over, provided that they wanted to buy a house that costs more than the threshold.

For the record, I am not celebrating this change and don’t see it as a positive, especially in this time. However, I am trying to have a positive attitude by finding a silver lining :-).  Personally it seems unacceptable for the Ontario government to charge HST and land-transfer tax.