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While
the Ontario government announced Thursday that first-time
home buyers will be given a break on the land transfer tax
by extending the existing exemption for new homes to
include resale homes, the federal government continues to
create an affordability issue with their goods and
services tax policy that takes in $2 billion a year on new
home sales, according to the Residential Construction
Council of Ontario.
"Rising
home prices and rising interest rates have been all part
of an attack on affordability and taxes are part of
that," says housing economist Will Dunning, who wrote
the report.
One
major problem according to the economist is that the
17-year-old tax hasn't been adjusted for inflation or
market conditions.
Average
home prices have increased dramatically since 1991, with
new home prices virtually doubling since then.
With
the implementation of the tax, buyers were entitled to a
rebate of 36 per cent of the GST on homes costing up to
$350,000. The rebate was clawed back from homes costing
between $350,000 and $450,000. Homes priced at $450,000
and above are not entitled to a rebate.
"This
was a totally arbitrary number, and they haven't changed
it since," says Dunning.
Back
in 1991, only 4 per cent of homes were taxed at the full
GST rate. One reason may have been that anyone who would
spend $450,000 for a home back then could afford to pay
full freight.
But
that figure isn't representative of a "luxury"
or upscale home.
ReMax,
for example, changed its definition of a luxury home in
the Toronto market this year to $1.5 million from $1
million.
Today,
about 25 per cent of all new homes exceed $450,000 and
buyers pay full GST, the study says.
One
problem is that when the tax was first introduced, the
federal government committed to reviewing the thresholds
"every two years and adjust them as necessary to
ensure they adequately reflect changes to economic
conditions and housing markets," the report says.
That hasn't happened.
Even
with the GST being reduced to 5 per cent next year, home
buyers will still be paying $16,500 on average, far more
than originally anticipated, said the report.
A
spokesperson from Finance Minister Jim Flaherty's office
said yesterday they were aware of the report, but no one
was immediately available for comment.
The
study is supported by groups such as the Canadian
Taxpayers Federation who are concerned about housing
affordability.
"The
federal government's failure to adjust GST credits on
items like new homes hurts families the most," said
John Williamson, federal director of the taxpayers
federation.
Source
:
Toronto Star
- Ontario, Canada, dated 15/12/2007
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