So will home buyers get a break when the 12-per-cent HST disappears and the PST/GST returns, with only a family friendly five-per-cent charge on sales of homes?
Difficult to say, realtor Harvey Exner says.
With so many variables, such as rising land prices, tax rebates, input costs and market forces , it all could end up as a wash – with little apparent difference in house prices when the old tax returns in March 2013.
Last week, the provincial government gave March 31 as the date for returning to the provincial sales tax/goods and services tax system after voters defeated the Harmonized Sales Tax in a mail-in referendum over the summer.
That’s too long for both Exner, who manages Macdonald Realty, and Rustam Yazdgerdian, who owns Meadows Cleaners.
“There’s cause for concern because of the uncertainty, not knowing when things are going to change,” Exner said.
“I think 18 months is a long time for people to wait to have the system go back.
“We just want to know from an industry perspective, where are the transition plans and how we are going to switch back.”
Realtors and home builders are now confused about transitioning back to the previous GST/PST system, while businesses face the cost of converting back to the system that was in place before July 2010.
That could make people think twice about a home purchase, he adds.
Exner said that, in theory, in a competitive marketplace, a new home should cost less under the HST system because builders get rebates for all the taxes they pay on construction costs.
For instance, if materials cost $100,000, they’d receive rebates of 12 per cent, which could be passed on to customers.
But land costs are a major factor in home prices, which makes it difficult to judge if prices were reduced under the HST system or if the reversion to PST/HST will cause prices to rise.
“This is why the numbers are skewed because the price of the house may go up beyond the amount of PST a builder pays.”
In July 2010, moving from the pre-HST regime when buyers paid only five-per-cent GST on a new-home purchase, to one in which they paid 12-per-cent HST, was dramatic, even with the provincial housing rebate.
Under the HST, for a $700,000-home, a buyer would have paid $57,750 in HST, with rebates included.
Previously, buyers only had to pay five-per-cent GST, meaning the total tax on that same house was only $35,000.
For a new $350,000 condo, buyers would have paid only $11,200 in GST (because of rebates).
That compares to an HST tab of $18,200 for the same condo. The taxes apply only to new homes.
“The savings to the consumer are significant,” said Exner.
“On paper, you’re paying a lot more in taxes.”
But again, he adds, house prices also could climb because PST and GST costs are now added into the price – because contractors no longer have those input taxes rebated.
Exner didn’t want to get into debate about which tax system is superior and couldn’t say if the market will go up or down.
The perception, though, is the buyer will pay less in home sales taxes and less in the taxes on the commissions to sell or buy those houses.
The first time the switch occurred, there was plenty of confusion.
Real estate offices were interpreting rules differently, contractors didn’t know what to do and getting consistent explanations from government was difficult.
Rustam Yazdgerdian, though, has had enough of economic theory.
Yazdgerdian felt the HST effect immediately upon its introduction on July 1, 2010, when the tax he charged customers went from five per cent GST to 12 per cent HST.
That was just before he was about to hire another person, so he’d no longer have to work six days a week. But with the drop in business, the hire never happened.
He was told the HST would improve business. He received HST rebates of $4,000 over three months – but lost more than that each month in sales between his two locations of Meadows Cleaners, since the HST came in.
“I don’t want the … refund. I want my sales up.
“They should get rid of it as soon as they can because it’s hurting our business.
“I can understand three or four months, but why wait for 18 months? I don’t understand.”
Overall, his business dropped about 15 per cent in the year the HST’s been in place, which has left Yazdgerian angry at the government, even if it’s removing the tax.
Only in July of this year, did business stabilize. Once the PST/GST system returns, he expects his business to recover, though he’s not sure by how much.
“I’m so happy it’s gone, but I hope it goes quick.
“I’ll wait for the ballot box. That’s it, and I’ll settle my score.”
Evelyn Ching at Austin Fish and Chips in Valley Fair Mall said earlier this week that when the HST first came in July 2010, her sales dropped almost 25 per cent. With a 12-per-cent HST charged on restaurant meals (compared to only five per cent GST previously), customers were paying up to quarter of their bill in taxes and tips.
She’s trying to maintain her prices while costs of flour, fish and cooking oil all increase, and hopes that reverting to the old system will give restaurants a break.
She thinks 18 months is too long to switch back.
Maple Ridge-Pitt Meadows Chamber of Commerce executive-director Jesse Sidhu said his office only received a handful of calls or e-mails on the topic.
The chamber supports the B.C. Chamber of Commerce, which said it was disappointed in the referendum results.
But there should be a way of adding some of the good parts about the HST to a PST/GST system, he added.