March 31, 2013

Back to the PST

While the complete picture is not yet clear, the return to PST should be good news for homebuyers, home sellers and those renovating their homes.

BY TONY WHITNEY

Helmut Pastrick, chief economist for Central 1 Credit Union

After a much-discussed referendum in British Columbia last year, more than half of respondents voted to drop the controversial 12 per cent Harmonized Sales Tax (HST) and revert to the older system which involved, for most purchases, a combined five-per-cent Goods and Services Tax (GST) and seven-per-cent Provincial Sales Tax (PST). HST officially ended on March 31. This revision of the system will certainly mean changes with regard to most things we buy and the changeover could be complex. Canada West Foundation director Roslyn Kunin goes as far as to say that the change will cost the province some $3 billion and may take at least 18 months to enact. The Canada West Foundation is a non-partisan think tank committed to sustainable prosperity in the region.

But what does all this mean to the homebuyer and people planning to sell a home or undertake a major renovation? Are there benefits in the change, or will the whole process make the business of home buying more complex or even more costly? To find some of the answers, we spoke to Helmut Pastrick, chief economist for Central 1, the trade association and financial facility for credit unions in B.C. and Ontario.

Pastrick said that overall, the picture would be “mixed,” depending on the circumstances. “Looking at renovation projects, which are relatively simple to understand,” Pastrick said, “we should be looking for a drop in total costs with reductions coming on the labour front with the HST component no longer having to be paid. Labour is the largest component in a renovation project so the cost reduction there would be notable.” There would be reductions tied to other elements in a renovation project, so a tax break is coming in that segment. “The percentage reduction is a fair saving on a significant project,” Pastrick added.

On the homebuyers’ side, Pastrick said that there was some HST relief during the last year of the tax with a rebate scheme for all new homes costing up to $850,000 and many people benefited from that. With the end of HST, the rebate is no longer available. This rebate applied to the seven per cent portion of the HST levied on the purchase of a new home. As of April 1, purchasers no longer pay the seven-per-cent provincial portion of the HST but a transitional provincial tax of two per cent may be levied if the home was partly completed at the time HST ended. Buyers of homes that were under construction during the changeover should check these details carefully before closing on the property. Incentives such as the first-time-buyers’ bonus remain in place as before.

As far as selling a home goes, the costs will be somewhat lower for the vendor, according to Pastrick. “These lower costs are primarily related to transaction expenses like realtor fees, appraisal fees and other costs associated with a home sale. This is where the savings will be felt.” Land transfer taxes, which have been around for 25 years or more, will not be affected by dropping the HST but first-time homebuyers can get an exemption, as before. Pastrick said that there might be something of a jump in renovation activity. “It’s a good time to plan a renovation and there may be a flurry of activity,” he added. Many homeowners have postponed or delayed work while waiting to discover the outcome of the tax changes and now they’re beginning to initiate their projects.

Right now, it seems clear that for homebuyers, those planning to sell a home and for renovators, the end of HST will mean savings at one level or another. It will be some months before the picture becomes completely clear, but at the moment, buyers, sellers and renovators have lots of incentives to encourage them to make their move sooner rather than later.

(For more details, the website www2.gov.bc.ca has lots of information on every aspect of the new tax structures, including home buying, grants and rebates. Click on “Housing.”)

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