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Missed opportunity in budget to help first-time home buyers, says Cook
Mar 26, 2010

By failing to change the way the land transfer tax (LTT) is collected in its March 23 budget, the provincial government missed an excellent opportunity to level the playing field with other provinces and keep young people in Manitoba, according to Don Cook, the chairman of the WinnipegREALTORS® civic and legislative affairs committee.

“In terms of looking after most basic needs for Manitobans there were good things in the budget,” said Cook, “but Finance Minister Rosanne Wowchuk forgot about shelter — an extremely important basic need.”

Prior to the new March 23 provincial budget, WinnipegREALTORS® had been asking the province to exempt first-time home buyers from the LTT.

“Saving for a down payment on a house is a very, very difficult process,” said Cook, “and then first-time home buyers are told they also have to come up with money for the LTT.”

The LTT means an additional $1,650 is needed to buy a home valued at $200,000, and another $1,000 if purchasing a $250,000 home. The province collects $3,650 on the purchase of  $300,000 through the LTT. 

The LTT becomes part of the closing costs when purchasing a home as its payment is required before the title is transferred to the new owner. 

“First-time home buyers do not have built-up equity from an existing property to use toward a home purchase,” added Cook. “First-time buyers must save money from their net income for a home purchase, which is difficult in today’s world.”

He said other Canadian provinces either don’t have an LTT or have raised the exemption level.  

British Columbia, where 73 per cent of home purchases are for less than $500,000, recently raised its land transfer tax exemption for first-time buyers to $425,000, while Alberta and Ontario do not have an LTT and Saskatchwan’s LTT raises a modest $300 for very $100,000 in property value.

Manitoba has the highest LTT in Canada of two per cent — it was 1.5 per cent in 2004 — applying to properties valued over $200,000. For every $50,000 above $200,000, a home buyers owes the province another $1,000.

Since the average home price is now $230,000, the LTT has been a windfall for the province, Cook added.

“We have to keep our young people in Manitoba by leveling the playing field with other provinces” said Cook.

The government should have considered that young, skilled workers are mobile and able to pull up stakes to move to other provinces where the LTT is less onerous or doesn’t exist. 

“The government has to begin looking at the local real estate market in a different way,” said Cook. “First-time home buyers are not ordinary home buyers — they are mainly young people who do not have a lot of cash to spare on extra closing costs such as the LTT.

“And saying there is an education tax credit of $650 available to homeowners means nothing to someone who is now saving money for a down payment to purchase a home.”

The new budget actually deferred the $50 education tax credit increase originally scheduled for 2010.

Cook said the LTT is a graduated tax which increases as home prices increase. In 2007, the LTT raised $38.2 million for the province, but that amount jumped to $49.6 million last year.

According to a study by Will Dunning, the chief economist for the Canadian Association of Accredited Mortgage Professionals (CAMP), house prices rose in Manitoba by 97 per cent between 1997 and 2007, while the LTT rose a staggering 358 per cent, far in excess of any reasonable estimate to operate the land registry system in administering the LTT. Dunning said the province has realized a 44 per cent increase in revenue generated through the LTT since 2006.

“The taxes levied on land transfers are far in excess of any societal or governmental ‘costs’ that result from the activity of home buying and therefore these discriminatory taxes are not justifiable,” said Dunning.

The present LTT is 0.5 per cent for the portion of the selling price between $30,000 and $90,000, one per cent for the portion between $90,000 and $150,000, 1.5 per cent for the portion between $150,000 and $200,000 and two per cent for a home valued above $200,000.

Besides the exemption for first-time home buyers, WinnipegREALTORS® is proposing the rates be lowered for other home buyers to 0.5 per cent for the first $100,000, one per cent for the next $100,000 and 1.5 per cent for the portion between $200,000 and $500,000. Another proposal is for a tax emption on home purchases over $500,000. 

Cook said a recent report from the Canadian Real Estate Association showed that every real estate purchase in Manitoba generated $40,000 in ancillary spending such as for appliances and other household items.

By exempting first-time buyers, they will not only have a greater ability to save for a down payment, but more money in their pockets to be used for household furniture, added Cook.

He said WinnipegREALTORS® will continue to press the government to make changes to the LTT.

“We’re going to keep grinding at it,” Cook vowed. “And, we expect the government will act on the LTT, since it’s the proper way to go.”

As part of its campaign to have the LTT changed, WinnipegREALTORS® recently established the website www.2muchltt.com, which contains extensive information on the impact of the tax and the proposed changes. 

WinnipegREALTORS® is also meeting with Housing and Community Living Minister Kerri Irvin-Ross next week to discuss the LTT, added Cook.