The 2006 Federal Budget measures will put more money in the pockets of individual Canadians and enhance their ability to maintain and finance a home, the Winnipeg Real Estate Board said following the tabling of the 2006 federal budget on May 2.
“The broad tax reductions outlined in the budget will help to increase consumer confidence about making larger purchases, such as buying a first home or moving up into a larger home to house a growing family,” said WREB president Walter Boni. “It will also provide some of the funds consumers might need to repair or renovate their existing homes.”
Dave Benhow, president of the Canadian Home Builders’ Association, said the federal government called the reduced GST a major benefit to new home buyers and good news for homeowners planning renovations.
“Local REALTORS® welcome the reduction in the GST rate to six per cent, which will have the effect of reducing the costs associated with buying or selling a home,” said Boni.
The GST is charged on professional services used by consumers during the course of a housing transaction, including fees paid to lawyers, appraisers, home inspectors and REALTORS®. The tax is also charged on moving costs, renovations, and the purchase of furniture and major appliances.
The GST is also paid on new homes, and the amount new home buyers will save with the reduction is significant. For example, a family purchasing a new $200,000 home will save $1,280 in GST when the New Housing GST Rebate is included.
“We appreciate that everything can’t be done in one budget,” said Benhow. “But the current rebate thresholds impose a significant tax penalty on buyers who live in communities where home prices have risen sharply.”
Benhow was referring to the fact that the full GST rebate applies only to homes priced up to $350,000, and that there is no rebate on homes over $450,000.
The rebate thresholds have not been adjusted since the GST was introduced. If the rebate thresholds had been adjusted to reflect the increase in home prices, Benhow said the thresholds would now be $450,000 to $580,000.
“Indexing is long overdue and it’s the fair thing to do,” he added.
The federal budget also includes the creation of three new third-party trust funds — worth a total of $1.4 billion — to help provincial and territorial governments address housing needs.
A total of $800 million is allocated for affordable housing, $300 million for northern housing and $300 million for off-reserve aboriginal housing.
Manitoba’s share of the $800-million affordable housing allocation is expected to be $29 million.
Few details as to how the fund will operate were included in budget documents, and REALTORS® will be watching closely to see how the money will be used.
The WREB will be watching closely because of its involvement in the Housing Opportunity Partnership which provides affordable housing for modest-income individuals and families in Winnipeg’s West End.
“There are many useful measures the federal government could take to address housing needs across Canada that do not require the time and money associated with building new housing units,” said Boni.
The Canadian Real Estate Association has made many recommendations to Ottawa for the development of a comprehensive national housing strategy. These measures include addressing taxation and regulatory barriers that impact the affordability of housing, and providing long-term, stable funding for the Residential Rehabilitation Assistance Program.
• The GST rate will be reduced to six per cent, effective July 1. The date was selected to provide businesses with enough time to implement the change without having a significant impact on consumer spending.
• A family purchasing a new $200,000 home will save $1,280 in GST.
• A family buying $20,000 in new appliances and furnishings for a new home will save $200 in GST.
• Where ownership or possession transfers to the buyer before July 1, the seven per cent rate would apply.
• Where ownership and possession transfer to the buyer on or after July 1, the six per cent rate would apply if the agreement of purchase and sale is signed after budget day, May 2. Buyers who signed the purchase agreement on or before May 2, and whose GST is based on the seven-per-cent rate will be able to claim a transitional adjustment from the Canada Revenue Agency.
• The timing of the GST cut is not expected to have any short-term impact on the housing market. The GST cut will apply to contracts signed after May 2, if possession occurs after July 1. There is always a cycle in a real estate transaction, and many buyers who sign after May 2 would not plan to take possession until after July 1 anyway.
• The budget includes transitional rules for transactions occurring prior to, or straddling, the July 1 implementation date.
• In general, the existing GST rules will determine if the six-per-cent rate will apply. Typically, GST is payable when an invoice is issued.
• A good or service for which you are invoiced on or after July 1 will generally be taxable at the new six per cent rate, even if you receive the good or service before that date.