HST affects homeownership | #Toronto #realestate

HST affects homeownership


As of July 1, Ontarians have been paying a harmonized sales tax rate of 13 per cent on a long list of goods and services that were previously exempt from the eight per cent provincial sales tax. While the impact of the tax is being felt by all Ontarians, the province’s three million homeowners and the thousands who buy and sell a home every year have also been affected.

As real estate professionals, realtors know how important the dream of homeownership is to Ontario families. After July 1, every residential real estate transaction in Ontario faced a tax increase, specifically legal fees, appraisals, real estate commissions, condo fees, home inspection fees and moving costs.

As HST applies to most of the services provided in completing the real estate transaction, 13 per cent HST is applied to the commission a realtor charges for facilitating a sale. The tax is paid by the person responsible for paying the commission — generally the seller. HST is charged on these fees regardless of whether the house purchase is itself HST exempt — one exception is mortgage broker fees are HST exempt if the fees are charged separately from any taxable real estate commissions. As well, mortgages and interest on mortgages are HST exempt.

Resale homes are sold without HST. This is because resale housing was never subject to provincial sales tax or the federal goods and services tax, and has continued to be exempt from both taxes now that they are combined under the HST. Revenue Canada defines “used residential property” to include a previously occupied house, condominium, summer cottage, vacation property or non-commercial hobby farm. New home purchases are subject to HST but may qualify for an HST rebate. Ask your realtor for details on rebates based on the purchase price of the home you are considering.

Land may be exempt from tax, but realtors and other professionals must charge HST on the purchase price. However, if the home is going to be your primary place of residence, it may qualify for a partial HST rebate, depending on sale price.

HST is normally payable when the real estate transaction is completed — generally the “closing date.”

In some cases, HST could be payable on transfer of possession.

When it comes to HST for businesses, although the costs of purchasing or renting a commercial property are subject to HST, businesses are allowed to claim tax credits to offset these costs.

Even better, when purchasing a commercial property, the business can claim the tax credits immediately so no upfront costs are incurred for the HST, and cash flow is not affected.

Remember, your realtor is there to answer any questions you have about HST and your real estate transaction. You can also find further information pertaining to the HST at www.windsorrealestate.com or www.rev.gov-.on.ca.



Resale prices rise 13.6% nationally – #Toronto #realestate

Resale prices rise 13.6% nationally


Prices for Canadian homes sold and bought in June were 13.6-per-cent higher than prices in the previous June, a national survey of real estate transactions reports.

The advance was strongly influenced by the Vancouver number, of 16.3 per cent, and the Toronto number, 16.2 per cent, the Teranet-National Bank National Composite House Price Index reports.

The June advance nationally was identical to the May advance.

In the other metropolises surveyed, the 12-month rise ranged from 7.1 per cent in Halifax to 12 per cent in Ottawa. In Calgary, it was 8.3 per cent and in Montreal, 8.7 per cent.

June was the third consecutive month in which prices were up from the month before in all six metropolitan areas surveyed. The monthly rise of the composite index — 1.5 per cent — was the largest since last August. The monthly rise was 2.7 per cent in Ottawa; 2.4 per cent in Toronto; 1.4 per cent in Montreal; 1.3 per cent in Halifax; 0.8 per cent in Vancouver; and 0.2 per cent in Calgary. For the composite index, it was the 14th straight monthly increase, the longest such run since October 2006.

“Since the resale market has been slackening across Canada — from April to July of this year, more existing homes came on the market than were sold — it is too early to conclude that the relatively vigorous prices rises of April, May and June launched a trend,” said the Teranet-National Bank report. “The prospect of harmonized sales taxes coming into effect July 1 in Ontario and B.C. may have stimulated sales in Vancouver, Toronto and Ottawa in the preceding months.”

The price index is calculated from transaction information collected from public land registries. Only dwellings that have been sold at least twice are considered in the calculation.



Wealth comes with problems for couple with complex investments – #Toronto #realestate

Wealth comes with problems for couple with complex investments

Morris and Valerie have achieved the Canadian dream, both retired at 58. Their financial assets add up to $2,825,000, which they manage themselves but the return is just a few per cent per year, very little for such a substantial portfolio.

Morris and Valerie have achieved the Canadian dream, both retired at 58. Their financial assets add up to $2,825,000, which they manage themselves but the return is just a few per cent per year, very little for such a substantial portfolio.


Situation: Affluent couple risks loss of assets and income from complex portfolio Strategy Restructure investments, create testamentary trust for expected inheritance

Solution: Lower taxes, a more secure portfolio, higher income


In Saskatchewan, a couple we’ll call Morris and Valerie, both 58, are retired. Valerie draws $60,000 per year from a commercial property she owns. With Morris, she also has two rental condos that produce net income of $10,200 per year. Morris supplements their income by drawing $20,000 per year from $175,000 in a savings account to produce $90,200 annual pre-tax family cash flow. After tax, their combined cash flow is $6,000 per month.


Morris and Valerie have achieved the Canadian dream, “Freedom 55,” as one life insurance company styles it. Their financial assets add up to $2,825,000, which they manage themselves. The money is invested in a collection of funds, commercial property, bank accounts and stocks that have produced an average annual compound return of just a few per cent per year. It is very little for a substantial portfolio, Morris laments.


“I have made mistakes in picking stocks and I have not timed my trades very well,” Morris says. “I realize I am on my own. I manage the portfolio, but it is a lonely job.” It is work that does not forgive mistakes, he adds.


Family Finance asked Derek Moran, head of Smarter Financial Planning Ltd. in Kelowna, B.C., to work with Morris and Valerie in order to improve investment returns and to make his income more secure.


“The problems are really about the complexity and diversity of their income,” he explains. “There are too many investment accounts without evident structure. On the one hand, this gives them protection against the failure of any single stock or the underperformance of any mutual fund or even group of funds. On the other hand, the number of funds, preferred stocks, common stocks, bonds and American shares would make management hard even for a professional portfolio manager.”


Structuring income


Valerie draws cash out of her commercial property, leaving $15,000 of rental income in the management company as retained earnings. They also have a couple of condos that they rent out which provide a few thousand dollars a year net rental income.


At age 60, each can draw reduced Canada Pension Plan benefits. However, they can afford to wait to age 65 and should do so, Mr. Moran says. At that time, Morris will receive the 2/3ds of maximum credits, now $11,210 per year, that he has earned, or $7,432 per year. Valerie will receive 44% of maximum credits she has earned or $4,832 for total annual benefits of $5,432 per year.


Each will receive Old Age Security benefits at age 65. Those benefits, now $6,222 per year, are likely to be subject to the clawback which currently begins at $66,733.


Assuming a conservative return of 3% over inflation, their potential retirement income based on their financial assets should be at least $132,500 per year for the 32 years to their age 90.


Putting it all together, their maximum sustainable retirement income should be $157,208 per year, subject to what might be a loss to each of about $2,000 per year to the OAS clawback, leaving gross income after clawback but before income tax of $153,208. After tax at an average rate of 25%, they would have disposable income of $114,906 per year in 2010 dollars, a sum far in excess of their present spending or requirements.


Tax planning for inheritance


Morris has a backup, for he expects to receive an inheritance of about $1 million from his father who is now 88. Dad is quite competent and can do estate planning. Dad should rewrite his will to make the money to be inherited by Morris go into a testamentary trust with Morris as beneficiary rather than to Morris directly. The trust will file its own tax return at graduated rates. The trustwill cost at least a few hundred dollars to set up, could involve probate fees of as much as $13,000 in Saskatchewan, and may involve some fees for annual tax accounting, but the tax savings could be quite substantial, Mr. Moran notes. Moreover, the money taxed in the hands of the trust will not further boost Morris’ income and further impair his ability to retain OAS benefits.


It is important for Dad not to gift capital now to Morris for several reasons.

If transferred now, it cannot be part of the testamentary trust. And if Dad needs expensive long term care, he might not have the cash to pay for it. A bill of $50,000 in a care facility, paid with after-tax dollars, is possible. Moreover, deductibility of health care costs can be quite limited if not paid by the patient. A few years of such care would significantly erode Dad’s estate, the planner notes.


Morris and Valerie will be able to watch their capital grow as they age. They can add stability and predictability by moving assets from stocks and real estate to bonds or bond funds over time, aiming for a bond exposure as a fraction of their financial assets roughly equal to their ages. If they remain modest in their spending, they will be able to convey a substantial estate of their own to their children and charities, as they prefer.


Professional Management


Their legacy will be simpler and the management problems they leave to the kids will be less difficult if there is a single continuing entity to manage their stocks, bonds and funds. A Registered Portfolio Manager could be hired for a fee of 1.0% to 1.5% per year of investments under management. The manager would be a single entity, a far simpler arrangement than watching a gaggle of assets. The manager’s first job would be to rebuild their portfolio to make it more controllable, more focused and more profitable.


Financial management has its share of crooks, witness numerous scandals in the U.S. and Canada. However, investors are protected if all money is sent to a major trust company acting as custodian for the manager. The trust company also issues cheques to the client, leaving the manager the single job of asset management.


There is a final question of exposure to U.S. succession duties, a.k.a., death taxes.

Unlike Canada, which only taxes accrued but unrealized gains on designated assets at death, the U.S. taxes the full market value of U.S. property.


U.S. property includes real estate in America and American stocks, which the couple hold. High net worth Canadians can find themselves obligated to prepare a U.S. succession tax return, though under current tax law, subject to change, non-residents of the U.S. can apply tax credits to wipe out or reduce their liability up to present limits that would eliminate the couple’s U.S. tax due.


Morris and Valerie should acquaint themselves with this area of U.S. tax law, track its changes and then make a prudent decision about retention or sale of American stocks in their portfolio.


“Morris and Valerie have achieved a degree of financial independence that would make them the envy of many people,” Mr. Moran says. “The challenge of wealth is to steward it well. Advice and information are everywhere. Wisdom, however, is rare. That said, they are now the sole managers of their fortune. They need to find a management solution that will be permanent and cost efficient.”


Canadian home prices continue to rise – The Globe and Mail – #Toronto #realestate

Canadian home prices continue to rise

2009 Getty Images

Home ownership becoming less affordable as sales, demand fall: Conference Board of Canada

Sunny Freeman

Toronto — The Canadian Press

Canadian home prices are still on the rise even as sales fall as demand peters out, one factor that is making homes less and less affordable, according to a study by the Conference Board of Canada.

Home sales have fallen by 25 per cent since reaching a peak at the beginning of the year as fewer buyers compete and more houses come onto the market. That hasn’t stopped houses from becoming more expensive, a trend that is likely to continue, said conference board associate director Michael Burt.

“Most of the costs associated with home ownership, such as mortgage costs and insurance, are outstripping inflation and income growth,” said Mr. Burt, who studies industrial economic trends.

“As a result, housing affordability in Canada, which has been deteriorating over the past decade, will continue to decline during the next two years.”

Canadian home prices were up 13.6 per cent in June from a year ago, according to the Teranet—National Bank composite house price index, released Wednesday. Month over month, June prices were up 1.5 per cent — the largest monthly increase since last August and the 14th straight monthly increase.

Price increases in June were driven by the bustling housing markets of Vancouver and Toronto, where many buyers entered the market in advance of the new harmonized sales tax that took effect July 1 in Ontario and British Columbia.

Recent figures from the real estate brokerage industry show July sales fell 30 per cent and prices were essentially flat.

As more resale houses come onto the market and fewer buyers compete for homes, the housing market is at a crossroads between a balanced market and one that favours buyers.

Many economists predict the sector could move further toward a buyers market, which could be accompanied by a deceleration of price increases, if not outright price drops as seen in the United States.

Marc Pinsonneault of National Bank (TSX:NA) says home prices could soon fall, especially since the introduction of the HST in the hot housing markets of B.C. and Ontario have raised the price of many home purchases

His report on the index — a compilation of average home price changes in six metropolitan areas — suggests that it may be too early to conclude that vigorous price rises in April, May and June represent a trend.

“The prospect of harmonized sales taxes coming into effect July 1 in Ontario and B.C. may have stimulated sales in Vancouver, Toronto and Ottawa in the preceding months,” the report said.

Seasonally-adjusted home sales fell 8.2 per cent in June from the month before and shrunk 19.7 per cent compared to June 2009, according to the Canadian Real Estate Association.

However, the average Canadian home price sat at $342,662 compared to $326,689 in 2009.

Sales activity peaked in December 2009 and hovered near record levels during the first quarter of this year as buyers rushed into the housing market ahead of changes to mortgage rules, interest rate hikes and the HST.

Activity so far this year is up 5.6 per cent compared to the first seven months of last year, but the gap is expected to shrink as the year progresses because sales ramped up heavily during the latter part of 2009.

The strong pace of spending at the beginning of the year indicates the Canadian industry has fully recovered from the recession, and although new home construction activity is expected to slow, housing starts will remain at a healthy level, the Conference Board said in its report.

Housing starts slowed to 192,800 units in June, the slowest monthly pace this year. And home building is expected to slow during the second half of the year.

“The slowdown represents a shift to a more sustainable building pace rather than the beginning of a large correction in demand,” said the Conference Board.

Many economists predict an accompanying deceleration of price increases, with some saying prices could begin to fall modestly by the end of the year.

While performance in the Canadian housing market is weakening, it is faring much better than the U.S. market, where the past three months have been the worst on record for new home sales.

Sales of new U.S. homes dropped sharply last month to the slowest pace on records going back nearly half a century, the latest sign that the economic recovery is fading.

The U.S. Commerce Department said Wednesday that new home sales fell 12.4 per cent in July from a month earlier to a seasonally adjusted annual sales pace of 276,600.

With files from the Associated Press



Economy poised on the brink of deflation | #Toronto #realestate

Economy poised on the brink of deflation

 US stagnation, stock market redemption and Canadian credit crunch point to perfect storm

The press and the government declared the recession ended months ago but the economy is probably poised on the edge of a decade long decline according to economists.

 is reporting deflation fears in the US.  Over the weekend, one of the BNN commentators made a compelling but nerve wracking case for deflation in Canada.
Cautious people are increasing their savings by paying down debt and hoarding cash.
The US economy shed 131,000 jobs in July, leaving 14.6 Americans out of work.WSJ: U.S. Job Market Loses Steam Canada lost 139,000 jobs in July 2010. CBC


Both the US and Canada have borrowed heavily on the future with record deficits to end the recession but it has not happened. President Obama’s optimism has given frustration at his inability to make a dent in the economic crisis. 
The New York Times reports small investors, the mom and pop personal pension funds, are fleeing the stock market in droves.  “Investors withdrew a staggering $33.12 billion from domestic stock market mutual fundsin the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.” New York Times
During this time Canadians have blithely increased their personal debt to the point many families have no cushion. The Canadian Centre for Policy Alternatives reports “In the past few weeks some of Canada’s most respected economic authorities, including Bank of Canada Governor Mark Carney, have voiced concerns over the fragility of the recovery, globally and at home.  Now Paul Krugman joins that chorus of Cassandras, pointing his finger straight at the wishful thinkers who say Canada’s heavy lifting is done when it comes to economic recovery.”
“Household budgets are a bigger part of the economy, and re-balancing them will take a lot longer if governments prioritize putting their own fiscal house in order first. On this front, Krugman notes, Canadians have little reason to be sanguine about what happens next.” Canadian households: Among highest debt to income ratios in the world
Indeed Canada is last out of 20 nations for household debt. “Canada’s household debt hit a new record of $1.41 trillion in December, with no signs the recession has altered consumers’ willingness to borrow, creating warning signs for the economy, a survey found. If the debt were spread across all Canadians, each person would owe $41,740, that’s two and a half times more than two decades ago, the Certified General Accountants Association of Canada said.”
Canadian housing prices rise defying gravity

“The levels put Canada at the top of the 20 OECD nations in terms of debt-to-financial assets and puts their debt-to-income ratio at 144%, the survey found.” Toronto Sun:Canada’s household debt hits new record, CGA says
Canadians have been enticed by rising real estate values that didn’t decline in 2008 like the US real estate market. Politicians and optimists have been promoting a low interest rate strategy encouraging Canadians to borrow more against their homes to spend and prop up the economy.
That is the exact same scenario that got the US into the deepest recession in modern history. After the dot.com boom and bust and 9/11, the US government and Federal Reserve pumped up the economy with low interest mortgages. When that didn’t do enough they opened the floodgates to grant mortgages to anyone who showed a pulse.
The inevitable crash in the US economy was not predicted by anyone but a few naysayers. During the two years leading up to 2008 stock market crash along with the economy, no one wanted to listen to common sense.

House of Cards
 on MSNBC is a prophetic portrait of what is can happen in Canada. The media and politicians won’t warn anyone. They want people to spend and prop up the economy.
The crisis in the US was triggered by a drop in real estate prices as confidence fell. New tough mortgage rules in Canada and the HST in Ontario and BC hit the real estate market hard in July 2010.  BC real estate sales dropped 42% in July. Vancouver Sun
A slight rise in the essentially zero-interest rates could be a catalyst for some homeowners.
It won’t take long for Canadian real estate values to settle back to earth leaving some homeowners under water in liquidity. Then the crisis will begin in Canada all over again. Banks and mortgage companies will be forced to call loans and foreclose. Deflation may restore sanity but only at the price of many people becoming victims of the crash.

By Stephen Pate, NJN Network 


Seven must-have real estate contract conditions – The Globe and Mail


Seven must-have real estate contract conditions

real estate sign

Various real estate signs from the midtown area in Toronto, Ontario, Canada of office space for lease, houses for sale and sold. The Globe and Mail

It’s a good idea to educate yourself on the not-so-obvious parts of a real estate contract

Amy Fontinelle



When you formally make an offer on a home you want to buy, you’ll fill out a lot of paperwork specifying the terms of your offer. Aside from such obvious things as the address and purchase price of the property on which you’re making an offer, there are some items you should be sure to include in your real estate purchase contract.

1. Finance Terms

If you are like most people and you won’t be able to buy the home without obtaining a mortgage, your purchase offer should state that your offer is contingent upon obtaining financing at a specified interest rate. If you know you can’t afford the monthly payment on the house if the interest rate is higher than 6 per cent, don’t put 6.5 per cent in your offer. If you do that and you are only able to obtain financing at 6.5 per cent, the seller will get to keep your earnest money deposit when you have to back out of the offer.

If you need to obtain a certain type of loan in order to complete the deal, you should also specify this in your contract. If you are paying all cash for the property, you should state this as well because it makes your offer more attractive to sellers. Why? If you don’t have to get a mortgage, the deal is more likely to go through and closing is more likely to happen on time. (Learn more in 6 Ways To Come Up With A Down Payment On A Home.)

More from Investopedia.com

2. Seller Assist

If you want the seller to pay part or all of your closing costs, you must ask for it in your offer. The offer should state the amount of closing costs you are requesting as a dollar amount (e.g., $6,000) or as a percentage of the home’s purchase price (e.g., 3 per cent).

3. Who Pays Specific Closing Costs

The agreement should specify whether the buyer or seller will pay for each of the common fees associated with the home purchase, such as escrow fees, title search fees, title insurance, notary fees, recording fees, transfer tax and so on. Your real estate agent can advise you as to whether it is the buyer or seller who customarily pays each of these fees in your area.

4. Home Inspection

Unless you are buying a tear-down, you should include a home inspection contingency in your offer. This clause allows you to walk away from the deal if a home inspection reveals significant and/or expensive-to-repair flaws in the structure’s condition. For example, if the home inspection reveals that the home needs a new roof at a cost of $15,000, the home inspection contingency would give you the option to walk away from the deal.

Investor Education: Buying a home

5. Fixtures and Appliances

If you want the refrigerator, dishwasher, stove, oven, washing machine or any other fixtures and appliances, do not rely on a verbal agreement with the seller and do not assume anything. Specify in the contract any fixtures and appliances that are to be included in the purchase.

6. Closing Date

How much time do you need to complete the purchase transaction? Common time frames are 30 days, 45 days and 60 days. Issues that can affect this time frame might include the seller’s need to find a new home, the remaining term on your lease if you are currently renting, the amount of time you have to relocate if you are moving from a job, and so on. Occasionally, the buyer or seller might want a closing as short as two weeks, but it’s difficult to remove all the contingencies and obtain all the necessary paperwork and funding in such a short time period. (Learn more in 10 Hurdles To Closing On A New Home.)

7. Sale of Existing Home

If you are an existing homeowner and you will need the funds from the sale of that home to buy the home you are making an offer on, you should make your purchase offer contingent upon the sale of your current home. You should also provide a reasonable time frame for you to sell your home, such as 30 or 60 days. The seller of the property you’re interested in is not going to want to take his property off the market indefinitely while you search for a buyer.

There are many other things that go into a thorough real estate contract, but for the most part, you shouldn’t have to worry about them. Real estate agents will commonly use standardized, fill-in-the-blank forms that cover all the bases, including the ones described in this article.

If you want to familiarize yourself with the details of the purchase agreement form you’re likely to use before you write your offer, ask your real estate agent for a sample agreement, or search online for the standard form that is common in your locality. (If you are looking for a good deal and have time to wait, a short-sale house may be for you. To learn more, read Purchasing A Short-Sale Property.)

The Bottom Line

Even though these forms are common and standardized and a good real estate agent would not let you leave anything important out of your contract, it is still a good idea to educate yourself about the key components of a real estate purchase agreement.

Catch up on your financial news; read Water Cooler Finance: Billionaire Pledges and Other Positive Press.



Commercial real estate rebounds across Canada – Winnipeg Free Press

Winnipeg Free Press – PRINT EDITION

Commercial real estate rebounds across Canada



COMMERCIAL real estate transactions are on the rebound this year in Winnipeg and across the country, according to national real estate company CB Richard Ellis Ltd.

The company said a recent survey of a number of Canadian markets showed improving debt markets and lower interest rates have helped to fuel the rise in commercial property transactions.

It said there were $7.8 billion worth of transactions through the first six months of this year, which was a 60.2 per cent improvement over the $4.9 billion for the same period a year earlier.

The number of transactions also jumped to 2,243 from 1,565 a year earlier.

Winnipeg was not among the cities surveyed. However, a local spokesman for the firm — Derek Chartier of CB Richard Ellis Chartier & Associates — said the same trend was evident in the market here.

“We have definitely seen an increase in transactions and we’ve certainly seen a lot more interest on the investment side from both local and out-of-town investors…,” Chartier said.

He said the biggest problem is there aren’t enough investment properties on the market to meet the demand.

“The good product (that does come onto the market) is not lasting very long.”

CB Richard Ellis noted that despite the large increase in transactions, it’s important to recognize the mid-year figures from 2009 were well below historical averages.

It compared 2010 mid-year figures with 2005, a year described as more reflective of the country’s normal commercial real estate activity levels, and said volume was still up 22.8 per cent.

Current mid-year transaction volumes and prices for Canada’s commercial real estate market reflect healthy, more normal and sustainable numbers when compared to the same period last year. There is indication in the numbers that the market has rebounded from the recession,” said John O’Bryan, vice-chairman of CB Richard Ellis. “As the second half of the year typically shows stronger activity than the first, the commercial real estate market is poised to finish on strong and stable footing.”

The real estate company said local private investors represented the majority of buyers this year, with foreign investors only responsible for a minor share of activity.

Toronto led the way in commercial activity with $2.9 billion in transaction volume and 563 deals.


— Staff / Postmedia News

Republished from the Winnipeg Free Press print edition August 23, 2010 B5