Law Times

PAGE 8 COMMENT OctOber 5/12, 2009 • Law times eral GST earlier this year, other provinces began jumping on the harmonization bandwagon. For the longest time, a harmonized sales tax was a A Evaluating impact of HST changes on new homes The fter Ontario committed to the harmonization of its sales tax with the fed- Mundell_LT_Oct5/12_09.qxd 9/28/09 2:40 PM Page 1 creature only of Atlantic Can- ada, but the movement is gain- ing momentum, buoyed, no doubt, by federal government grants to aid in the transition. In a press release in July, British Columbia announced it would become the sixth province to harmonize. Other provinces are expected to follow suit, with Manitoba expected to be next in line. By combining the current seven-per-cent provincial sales tax with the GST, British Columbia will move forward with a unified CHRIS BENTLEY Attorney General of Ontario DAVID W. MUNDELL The David W. Mundell Medal is awarded annually to the Ontario writer on legal and pro- fessional matters who has, by publication in the preceding year or over a period of years, made a distinguished contribution to law and letters. The Honourable Warren K. Winkler Chair Selection Committee for the David W. Mundell Medal Osgoode Hall 130 Queen Street West Toronto, Ontario M5H 2N5 CHRIS BENTLEY Attorney General of Ontario The Honourable Warren K. Winkler, Chief Justice of Ontario, has graciously agreed to serve as chairman of the selection committee for this award. Nominations of candidates for this award are invited. Please note that the broad terms of reference for the award encompass all classes of writers - legal practitioners, academics, and others. Candidates nominated for previous competi- tions may be renominated. A nomination should include a list of the nominee's published writings and one representative sample only from that list, and be sent to the selection committee by November 13, 2009. ARE YOU READY FOR THE FLU SEASON? With the recent H1N1 pandemic and flu season approaching, be proactive and prevent the spread of infectious diseases in your office. Prices in effect until October 30th , 2009 3.41EA. was $5.69 Lysol Disinfecting Wipes, 35/Dispenser 46146-00 ecting Wipes, 3 ol Disinf 5.65EA. was $7.20 Purell Hand Sanitizer Wipes, 100/Box 38256-00 Purell Hand Sanitizer Wipes, 100/Box Acme Comfort Masks, 5/Package 46105-00 Comfort Masks, 5/P 6.41PK. was $10.68 4.65EA. was $6.17 5.81BX. was $9.68 Disinfectant Telephone Wipes, 25/Box 41890-00 Disinfectant Telephone Wipes, 100% Purell Hand Sanitizer, 354ml 46015-00 Hand Sanitizer 3 Purell Hand Sanitizer, 236ml 38257-00 Hand Sanitizer 6.05EA. was $7.86 For more information please contact your Account Executive or contact us at 1-888-393-3874 dyedurhambasics.ca www.lawtimesnews.com Untitled-3 1 10/1/09 4:06:39 PM Kleenex Facial Tissue, 100/Box, 2ply 38046-00 Kleenex Facial Tissue 100/Box 2ply 1.20BX. was $1.50 12-per-cent HST. At that rate, British Columbia will be boast- ing the lowest overall HST of all the provinces harmonizing sales taxes, beating Ontario's 13 per cent and the Atlantic provinces' 15 per cent. Although announced far later than Ontario, British Co- lumbia is set to launch its new tax concurrently with its central Can- ada counterpart in July of 2010. While this column is not the right venue to be discussing all of the pros and cons of merging two similar taxes from two levels of government into a more ef- ficient single tax, the fact is that harmonization poses a problem for those industries that, but for harmonization, would otherwise be exempt from the provincial levy. Services, in particular, will have to charge the full HST while before they attracted no provincial sales taxes at all. Of particular relevance to read- ers here, new home construction is one of the rare non-service in- dustries that will also be subject to de facto provin- cial sales tax after harmonization. While margin- ally lower in its starting rate, the B.C. HST mod- el shares an ap- proach towards the new home construction in- dustry similar to that of Ontario. Like in Ontario, newly construct- ed B.C. houses previously at- tracted no direct provincial sales-tax liability. New homes purchased in Brit- ish Columbia after July 1, 2010, will attract the 12-per-cent HST, subject to a partial rebate on the provincial portion equal to five per cent of the purchase price to a maximum of $20,000. In theory, this formulation is tax neutral for a new home under $400,000. (Actually, there remains a no- tional two-per-cent HST on sub- $400,000 homes, but this simply replaces the equivalent amount in provincial sales tax that had previ- ously been buried in the cost of building materials.) But British Columbia did not make the same mistake as Ontario did in its 2009 spring budget. As originally contemplated, Ontario would offer, in connection with the provincial component of the HST, a 75-per-cent reduction in homes costing up to $400,000; a graduated reduction in the re- bate for homes costing between $400,000 and $500,000; and no rebate at all on homes costing more than $500,000. In June, Ontario revised its policy position on mid- market and luxury housing and "enhanced" the rebate structure. As currently enhanced, Ontario will provide a 75-per-cent rebate against the provincial portion of the HST on all new home con- struction and rental stock no mat- ter what the price but in each case only to a maximum of $24,000. Both the B.C. rebate system and the Ontario enhanced ver- sion of the rebate are revenue Dirt By Jeffrey W. Lem Let me get this right — they've threatened to gouge out both of your eyeballs from their sockets for no real reason at all but then later say that they've changed their minds and have decided to gouge out only one of your eyeballs for no real reason at all. And for this you want me to sound grateful and call their policy 'enlightened?' neutral at $400,000 or less but burden all homes above that price with a greater overall sales tax than would have been the case before harmonization. All this comes at a time when most political agendas are looking to stimulate, not hin- der, construction and in provinces with large cities like Toronto and Vancouver where the sale price of many, if not most, new homes easily exceeds the $400,000 threshold. In my previous column, I en- thusiastically summarized that the Ontario government's en- hanced rebate for new home con- struction would effectively elimi- nate the provincial portion of the HST on all new house purchases in Ontario. But alas, while On- tario's enhanced rebate will signif- icantly relieve the added sales-tax burden on mid- market and lux- ury housing (at least compared to the position adopted in the spring budget), it nonetheless falls short of elimi- nating the de facto provincial sales-tax burden on the of house portion prices above the $400,000 threshold. Of course, most observers still agree that, from the perspective of the buying public and home and condo builders through- out the province, Ontario's en- hanced rebate policy is far more enlightened and a much better tax policy than the spring-budget version it replaces. That said, one very wise industry veteran was not so charitable, describing the resulting de facto provincial sales tax burden on new housing as follows: "Let me get this right — they've threatened to gouge out both of your eyeballs from their sockets for no real reason at all but then later say that they've changed their minds and have decided to gouge out only one of your eyeballs for no real reason at all. And for this you want me to sound grateful and call their policy 'enlightened?'" Whether or not the new home building industry in both prov- inces will end up bloodied and wearing prosthetic eyeballs as a result of sales-tax harmonization remains to be seen, but with both governments adopting an HST policy that is substantively simi- lar in its treatment of new home building, Ontario and British Columbia have probably set the norm for harmonization in the remaining provinces. LT Jeffrey W. Lem is a partner in the real estate group at Davies Ward Phillips & Vineberg LLP. His e-mail address is jlem@dwpv.com. M T he edal

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