Harmonized Sales Tax (HST)

Harmonized Sales Tax (HST)

"White box" refers to a newly constructed house or condominium unit, built to the minimum standards necessary to comply with the Ontario Building Code. The home might have one sink, one toilet and one bathtub. The floors could be plywood or cheap covering, landscaping unfinished, kitchen sub-standard or extra and the drywall painted with primer.  This is a version of the name “white box”. The property completed to comply with municipal occupancy requirements, but it will be a shell a “white box”.

If the McGuinty government introduces its legislation harmonizing the provincial sales tax with the federal goods and services tax (GST).  White box properties may become popular amongst builders. With the new harmonized tax (HST), the buyer of a new home priced under $400,000 would receive a rebate of 75 per cent of the provincial portion of the sales tax. Effectively, the builder of a $400,000 home would charge the consumer roughly $2,000 in provincial sales tax.  The (PST) rebate disappears on a home priced at $500,000, which is assessed the full 8 per cent tax of $40,000. At present a $500,000 house includes about $10,000 in provincial sales tax on items such as lumber and bricks. Under harmonization, the tax on that home jumps from 2 to 8 percent, an increase of $30,000.

Put simply, today a builder sells a home for $400,000, which includes $2,000 in PST. Under the harmonized tax, the price is the same. But if the builder prices a home at $500,000, the harmonized tax will mean the house has to sell for $530,000, a 6 per cent increase.

When the HST kicks in, builders will be forced to explore with customers interested in homes priced at more than $400,000 whether or not they would be interested in buying a "white box" house to keep the price under $400,000.

Here's how it could work. The builder and buyer of a $500,000 house agree to strip out about $100,000 in extras, so the home sells for just $400,000 including the "old" PST.  Faced with a choice of paying $500,000 or $530,000 for the same house or condominium, many new home buyers may opt for the cheaper route and do the finishing’s themselves aftermarket.  There is a question, whether the additional work would void the Tarion new home warranty, but that depends on many factors, including the type of work done and whether the second contractor is a registered home builder.

Randy Rodney

Randy Rodney

Broker
CENTURY 21 Percy Fulton Ltd., Brokerage*
Contact Me

Blog Archives