Taxes is a part of life, with consumers implicitly accepting sales tax on their purchases and larger taxes for purchases of escalating magnitude – like for that of a home or automobile. In July of this year British Columbia will be instituting a wide-ranging harmonized sales tax (HST) that will combine the provincial sales tax (PST) and goods and services tax (GST). The former is set at 5% while the latter is at 7% and the combination will be a staggering 12% addition to many goods and services that formerly were not subject to the PST and are now subject to the combination of GST and PST.

This new tax is being sold as a boon to the economy with no impact for buyers of homes under $400,000. Realistically, the median home price is well above $400,000 in many parts of British Columbia which boasts one of the highest real estate markets. The impact on sellers is clear – there will not be as many buyers able to afford the 7% increase in taxes that was once only a 5% GST.

And while rebates of 5%, about $20,000, will be given to help offset the costs to buyers of homes under $400,000, this does not affect those buying more expensive properties in any substantial way.

An example is that for a home selling for $600,000, the HST tax would equal $72,000. Applying the proposed rebate would lessen the tax impact to a total of $52,000. The problem lies in the fact that with the normal GST, the tax on such a home would only equal $30,000 and so buyers are still having to pay an extra $22,000 of taxes they didn’t have to previously. This price increase doesn’t just stay with the cost of the home, however.

The HST is applied to practically everything involved in the purchase of home including real estate commissions and legal fees. The asking prices of a home will no longer be indicative of the increased costs associated with the implementation of the HST.

Because HST is applied to a wide variety of goods and services it will be impacting internet, gas, electricity, heating fuel, and any repairs that are made. The HST creates a large jump in living expenses that makes the purchasing of a new home, or even selling an existing home very difficult.

The promise of an increased and more efficient economy with the addition of the HST is naive. Rebates aren’t enough to offset the lifestyle cost increases that may end up hurting the real estate market hugely.

The housing market is traditionally looked upon as part of the makeup of a healthy financial system, but the HST is in danger of bringing the housing market to a standstill. Applying a tax unilaterally to goods and services, as well as real estate, overall escalates the cost of living and limits spending rendering the HST essentially useless. The new HST tax and how it affects home sellers remains to be seen, but the prognosis seems grim.

Get more information today on the many factors affecting home sellers and buyers at the Salt Team Blog today! Lisa Salt at RE/MAX Vernon can answer all your questions regarding Vernon Real Estate.