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Law Times • JuLy 13/20, 2009 Tinkering supposed to make a de- cision over the Financial Services Commission of Ontario recommen- dation to cut accident benefi ts to $25,000 from $100,000. Th e FSCO has bound to backfire S ometime this week Finance Minister Dwight Duncan is Inside Queen's Park By Ian Harvey pushed forward an insurance industry demand that acci- dent payouts be cut in order to prevent massive rate increases. Th e Ontario Bar Association, Ontario Trial Lawyers Asso- ciation, and just about every other group such as the On- tario Home Care Association, the Alliance of Community Medical & Rehabilitation Pro- viders, and the Ontario Brain Injury Association are lining up to steamroll the idea. In eff ect, the plan repre- sents a massive offl oading of fi nancial responsibility to the public health sector which obviously can ill aff ord it be- cause when an accident vic- tim's $25,000 payment runs out, guess who gets to foot the bill for continued rehab? Politically, it's a minefi eld. Th e McGuinty government is already under attack for their poor handling of the eHealth project in which millions of dollars have been squandered, they've painted themselves into a corner by suspending the request for proposals over the Darlington nuclear power plant expansion setting up a massive energy shortfall which may force us back to coal or even higher rates, and now they risk setting themselves up to be the bad guys and hurt- ing accident victims while also draining the public health-care system of badly needed funds. With newly minted On- tario Progressive Conservative leader Tim Hudak sharpening his talons and recently crowned NDP leader Andrea Horwath starting to hit her stride, this is no time to hand the opposi- tion fresh ammunition. If Duncan rebuff s the pro- posal, then the insurance com- panies will cry poor, saying they've lost an arm and a leg in the fi nancial markets melt- down which is where they in- vested all those premiums and will have no choice but to jack up our auto rates. In that case, they come off like the bad guys and we all get screwed over. Something is clearly broken here but caving in to the insur- ance industry's demands isn't going to fi x anything. What needs to be addressed is not the symptom, but the root cause, says Richard Halpern, partner at Th omson Rogers and chair of the OBA's working group on auto insurance reform. First, he says, the OBA recognizes that the insurance companies are caught in a double whammy. Th e eco- nomic meltdown has crippled revenues while at the same time the fi rst-party-accident- benefi ts system is increasingly complex and expensive. "We have to ensure the economic environment is friendly for the insurance companies," he says. "Th e key costs are assessment and trans- action. And in the transaction costs [the cost of administrat- ing and paying out the ben- efi t] in claims under $25,000 every dollar of benefi t costs 60 or 70 cents because of the complexity of dispute resolu- tion and mediation." Th e message the OBA, the OTLA, and others are trying to send the govern- ment — which the FSCO has placed on review — is that we should "plagiarize" former as- sociate chief justice Coulter Osborne's recommendations to the attorney general of On- tario on civil justice reform. Halpern says Osborne's "level-headed and sober" ap- proach to civil reform could easily be applied to the insur- ance sector to make the level of complexity proportionate with the amount of money be- ing claimed. Th us larger claims would involve more checks and balances while simpler claims would be streamlined. Ontario has the most gener- ous fi rst party benefi ts system of all provinces among those that recognize tort rights, he says, and that's resulted in an incentive for insurance com- panies to be "gatekeepers" in health-care delivery and deter- mining who, how, and where injury victims get treatments. "Th e eff ect is HMO-style health care and that's not something we want to import here from our friends to the south," says Halpern. "It's not a good thing." Overall, he says, the FSCO report is a good fi rst step since it does recognize that com- plexity is an issue, though the OBA is at odds with the main recommendation, which Duncan is mulling. "By reducing complexity we can achieve two goals, one to relieve the pressure to raise premiums which will benefi t consumers and second to make the environment better for the insurance companies so they can achieve a reasonable rate of return for their shareholders." Seems like sage advice that Duncan might want to take a closer look at before he gives into the insurance companies. LT Ian Harvey has been a journal- ist for 32 years writing about a diverse range of issues including legal and political aff airs. His e-mail address is ianharvey@ rogers.com. www.lawtimesnews.com at www.lawtimesnews.com Ontario's proposed 13 per cent harmonized sales tax and its near ruinous implications for the new home construction industry and homebuyers in the province. In that earlier Law Times article, I pointed out that the overall tax burden (i.e. pre- harmonization) currently imposed by GST and PST on the purchase of a typical single family detached home in the City of Toronto ranges be- tween 5.3 per cent and 6.9 per cent of the median price of such a new home — a combined sales tax load just short of $50,000. After the then-proposed sales tax harmonization, however, the total sales tax on the same City of Toronto single family detached home would soar to over $96,000 in HST, a whopping $46,000 increase in the cost of Toronto new home ownership! Th e real culprit, of course, was not in the har- monization per se of the collection of these two levels of sales taxes. Most fi scal theorists agree that a co-ordinated and streamlined collection protocol is, at almost every level of analysis, pref- erable to the existing bifurcated provincial/fed- eral remittance procedures. However, as a byproduct of harmonization, I some line-items that had historically been exempt from the 8 per cent provincial retail sales tax would now become subject to an umbrella 13 per cent harmonized sales tax instead — in eff ect, imposing a de facto 8 per cent provincial retail sales tax where before harmonization there was none. For the most part, these new taxable line-items are services, most of which had been PST exempt prior to harmonization, but would become HST (including the built-in PST component thereof ) eligible after harmonization. Th e one notable non-service item that would also have been swept into the HST tax increase was new home construction (and this includes residential condominiums as well), especially on homes costing more than $400,000. While new homes sold at less than $400,000 enjoy a total GST rebate (which rebate would also extend to the HST after harmonization), the March budget contemplated that newly built homes sold for more than $400,000 post-harmonization would not only attract GST (as they now do), but also the built-in PST component of the HST. Well, wouldn't you know it, a scant few months after the publication of the Law Times column, the provincial government abruptly and eff ectively can- celled the PST portion of the HST above $400,000 by extending the rebate for the PST portion of the HST to all new home purchases, regardless of sale price. Th e full rebate was also extended to all new residential rental housing as well. Th e impact of the government about-face, which was publicly announced on June 19, 2009, is nothing short of astounding. On a $500,000 new house, condo, or rental unit anywhere in the COMMENT Reprieve for new home building industry n "Th e Dirt" column of the April 6/13, 2009 edition of Law Times, this writer waxed, if not eloquently then certainly vociferously, about province, the savings on the PST portion of the HST will be $24,000 per transaction. Based on ministry estimates as to volume, the extension of the rebate could cost Ontario coff ers upwards of a quarter of a billion dollars per annum. Of course, the rebating of the PST portion of The the HST on new home sales will do nothing to eliminate the increased incidental costs payable in a typical real estate transaction as a result of sales tax harmonization. Ontario's real estate buyers Dirt By Jeffrey W. Lem (whether buying housing stock or industrial, commercial, or in- vestment properties, and whether buying new or resale real estate) are all going to have to pay a 13 per cent HST on legal fees, sur- veyors' fees, appraisal and home inspection fees, title insurance premiums, and real estate commissions, all of which have historically been exempt from PST. All real estate deals will still suff er indirectly because of these increased an- cillary costs associated with adding a de facto PST to all real estate related services. Th e decision by the government will come as a particular relief to Toronto homebuyers. To- ronto has the simultaneous distinction of being the municipality with: (i) the most new homes and condos being sold above the $400,000 price point (estimates vary from 40 to 50 per cent of all Toronto new home construction to be above this price point); and (ii) the highest land transfer tax rates in the province. With the implementation by the City of To- ronto of its own municipal land transfer tax last year, had harmonization gone ahead as originally planned, the total tax load payable by a typical Toronto new home or condo buyer after July 1, 2010 (the proposed harmonization implementa- tion date) would have been a whopping 17 per cent (13 per cent in HST and 4 per cent in com- bined land transfer taxes). Alas, the ministry's announcement with respect to the extended HST rebate for new homes did not expressly credit "Th e Dirt" as the causa causans of this tax relief measure, but that does not stop the author from taking at least some of the credit for the government's policy epiphany. Of course, some might argue that relentless lobbying eff orts by industry associations like the building industry and land development asso- ciation, and development law mavens like Harry Herskowitz of DelZotto Zorzi LLP both before and after "Th e Dirt" column may have contrib- uted (perhaps signifi cantly) to the change in gov- ernment direction, but precision attribution is not productive at this stage. Suffi ce it to say that, from the perspective of both homebuyers and home builders in Ontario, the amended HST policy is now far better than the March budget version thereof that it replaces. LT Jeff rey W. Lem is a partner in the real estate group at Davies Ward Phillips & Vineberg LLP. His e-mail address is jlem@dwpv.com. PAGE 7