Tuesday, December 1, 2015

The Effects of Double Taxation on Ontario

Last week we talked about The Ontario Ministry of Municipal Affairs and Housing indicating that they are extending the power of municipalities across the province to charge a land transfer tax. This potential doubling of land transfer taxes would add thousands to the cost of purchasing a home in the province.

Today, we are going to look at the ramifications of such a policy:

  1. These changes and modifications to housing/financing rules always seem to have the largest impact on younger people and first time home buyers. This is a segment of the market that is most vulnerable to downturns in the market and economy and adding this additional cost makes things even more disproportionately difficult for them.
  2. The first time home buyers land transfer tax credit rebate in Ontario carries a maximum refund of $2000. With an average home price in Ontario of $470,000, this translates into a proposed land transfer tax of over $11,000. This rebate clearly doesn’t go far enough in relation to house prices at all time highs. Municipalities should also consider matching this rebate with their share of the land transfer tax.
  3. For the home buyer with the minimum 5% down payment (and insured mortgage), the added cost of this land transfer nearly amounts to 50% of the down payment. Add in legal closing costs and other soft costs such as appraisals and inspections and this 5% down homebuyer needs more like 10% down on closing.
  4. This increased cost will take some buyers out of the market or delay their purchases. This should also lead to increased rental demand as these buyers are forced to save longer for their downpayment. This should put downward pressure on vacancy rates and upward pressure on rents.
  5. The conservative government estimates this move would cost the province $2.3 billion dollars in lost economic activity and 15,000 jobs.
  6. This is just one more indirect tax on citizens. With proposed increased income taxes, revamped CPP or an Ontario Pension Plan, increased hydro/water costs way outside of other jurisdictions, the burdens on Ontarians continues to rise. When does it end?
Are there any other effects that you can think of? Let us know in the comments.

Russel Lalovich
Office: (519) 966-0444
Cell: (519) 995-5620

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