Four levels of government have their hand in the buyer's wallet and the take is going to get larger next year unless something is done
French economist Jean Baptiste Colbert (1619-1683) opined that "the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing."
Since the provincial government, in the middle of an otherwise perfectly good summer, surprised everyone with its intent to pursue tax harmonization, there certainly has been a great deal of hissing.
Granted, some business sectors will benefit from combining the provincial (PST) and federal (GST) tax systems, and they will, cross their hearts and hope to die, pass on their savings to consumers.
I understand and respect their reasons for supporting harmonization (HST). It's just that I am more than a little choked that buyers of new homes and homeowners renovating their homes will pay significantly more tax on these major expenditures next July, when the HST is implemented.
The current tax burden on new homes is staggering. Four levels of government -- federal, provincial, regional and municipal -- take turns plucking feathers from the goose, cleverly disguised as a homebuyer. Make no mistake, all taxes, regardless of when they are assessed, are borne by the buyer.
Without publishing a spreadsheet along with this column, here's a rundown of the taxes, fees, levies and charges that are applied on a new home. And pardon me if I inadvertently leave out a couple.
There is the property transfer tax (PTT) on the building lot, builder licensing fee, sewer and water levy, school site acquisition fee, subdivision fee, building permit fee, development cost charges, embedded PST on all costs, PTT again on the purchase of the completed home, and the GST.
I asked a prominent award-winning builder to figure out the total taxes and fees on a home his company is building. He put me in touch with his controller, a chartered accountant. We settled on basing a reasonable example on a single-family home under construction in Maple Ridge. For the record, I have no quarrel with Maple Ridge; the subject home just happens to be there.
The home -- a 2,200-sq.-ft., three-bedroom, 2-1/2 bath home with double garage and unfinished basement - has a selling price of $565,000. The total included tax burden is a whopping $75,500.
That same home under HST, including the proposed input tax credits and $20,000 rebate, jumps to $572,500, an increase of $7,500 or 9.9 per cent more tax than the current system. So, under HST, the tax burden on that new home next July will be $83,000.
There are police officers, firefighters, nurses and teachers among the homeowners in that Maple Ridge subdivision. They are hard-working, average family folks who likely don't give a tinker's damn about productivity, competitiveness or other buzzwords used to promote the benefits of the HST. They do, however, worry there might be too much month left at the end of their paycheques.
Commenting on the benefits of HST, Stephen Spector, president of the B.C. branch of the Certified General Accountants of Canada, was recently quoted as saying, "If someone is spending nearly a million dollars [on a house], don't tell me they can't afford an extra $20,000."
I wonder if this enlightened number cruncher feels the same way about someone having to pay an extra $7,500 in taxes in order to purchase an average-priced home? Don't know about Mr. Spector, but most folks take a long time to save $7,500 from their take-home pay after taking care of the bills.
Assuming the buyer of that Maple Ridge home has a down payment of 20 per cent of the purchase price, it is reasonable to presume 80 per cent of the $83,000 in taxes ($67,000) is going to be included in a mortgage. Based on a six-per-cent interest rate amortized over 25 years, the interest on that $67,000 worth of tax buried in the mortgage will cost the homeowner an extra $61,600.
And mortgage qualification for some buyers could also be affected by the higher cost of HST, as lending institutions aren't exactly rubber-stamping mortgage applications these days.
I would like one brave builder to step up and advertise his homes like the automobile dealers advertise their vehicles. You know, a photo of a shiny new car accompanied by a too-good-to-be-true price with an asterisk after it. At the bottom of the advertisement, beside the corresponding asterisk, are about five lines of impossible-to-read explanations of what is not included in the advertised price - taxes, finance charges, license, fees, paint charges, battery and tire levy, air conditioning levy, etc.
That Maple Ridge home, which carries a price tag of $572,500, would be advertised as $489,500, plus applicable taxes, fees, charges, levies, etc. That sure sounds like one sweet deal.
Being an inquisitive guy, I asked the builder about his profit margin. After land costs, development-related expenses, construction costs, staff salaries and office expenses, his margin is razor thin.
The provincial government should ensure the HST on new homes is tax neutral -- homebuyers must not pay any more tax on their new homes under harmonization than they do now. If tax neutrality is not achieved, watch for the hissing to reach a fever pitch next July.
Peter Simpson is the chief executive officer of the Greater Vancouver Home Builders' Association. E-mail email@example.com