2006 Federal Budget and the Real Estate Market

The tax cuts outlined in the 2006 will ease the tax burden on individual Canadians, and reduce some costs associated with buying and owning a home. “These tax cuts will put money back in the pockets of Canadian families and will help increase consumer confidence about making big ticket purchases, such as buying, furnishing, or renovating a home,” says Pierre Beauchamp, Chief Executive Officer of The Canadian Real Estate Association. “The reduction in the GST rate to six per cent will reduce the costs associated with buying or selling a home, and will help to make ownership more affordable,” adds Beauchamp.

The GST is charged on professional services used by consumers during the course of a housing transaction - including fees paid to lawyers, notaries, appraisers, home inspectors and REALTORS(R). The tax is also charged on moving costs, renovations, and the purchase of furniture and major appliances.

The GST is also paid on new homes, and the amount new home buyers will save with the reduction is significant. The one per cent reduction in the GST rate will save a homeowner $1,280 on a new home priced at $200,000 when the exisiting GST New Housing Rebate is also included.

The timing of the GST cut, scheduled for July 1, 2006, is not expected to have any short-term impact on the housing market. “The GST cut will apply to contracts signed after May 2nd,” Pierre Beauchamp says, “and there is always a cycle in a real estate transaction, and many buyers who sign after May 2nd would not plan to take posession until after July 1st anyway.”

The reduction will also benefit anyone who buys or leases commercial property - particularly for businesses that do not collect the GST, as the tax is a direct cost. When the GST was introduced, it immediately added seven per cent to the costs of occupancy of leased premises. It also added seven per cent to the purchase price of commercial real estate, or value proportion thereof for commercial and residential mixed properties. This is extremely important to note for businesses that do not collect GST, as this is a direct cost.

The Federal Budget also announced $1.4 billion to address the needs for affordable and native housing, two REALTOR(R) issues of high priority. These issues are addressed in four different areas of the budget, including creation of three third-party trusts. One trust fund provides $300 million for northern housing; another trust provides another $300 million for off-reserve aboriginal housing. The largest third-party trust fund will allocate $800 million as a one-time investment for provinces and territories to use for affordable housing.

Few details on how the fund will operate were included in Budget documents, and REALTORS(R) will be watching the implementation of the fund closely to see how the money will be used. “Building new housing units is one solution to the affordable housing needs of Canadians, but is not necessarily the best solution. Housing needs are complex, and there are a number of factors that need to be considered, including the ways we can use existing housing stock to meet the needs of most Canadians,” says Beauchamp.