Picture a small child holding his hand over an electric stove, moving it towards the fiery red element.
Fast forward, and picture that child twenty seconds later.
The words, “WOW….this was a bad idea” certainly come to mind.
Take note, David Miller…
By this time tomorrow, a lot will have changed in the Toronto real estate market.
And the City of Toronto may have finally killed the goose that laid the golden egg.
This afternoon down at City Hall, the Toronto City Councillors will vote on David Miller’s proposal to institute a new land transfer tax on the sale of residential properties. Since there is already a land transfer tax in place (payable to the Ontario government), this will effectively DOUBLE the tax.
Real estate is simply the hottest industry, and has been for the last several years. It’s not just Realtors that are making money off commissions, it’s investors and speculators, builders and developers, renovators, tradespeople, home inspectors, security companies, landscapers & garden centres, furniture stores, and the list goes on, and on….and on!
Real estate is the engine that has been running this country for the past four years.
And all that is going to change today, or if you ask Mayor David Miller, who has already declared victory before the vote has even been held—it’s already changed.
The new tax will be in place as of January 1st, 2007, meaning that deals reached in 2006 but closing in 2007 will not be taxable.
What are the ramifications?
- First Time Buyers: It is rumored that the new tax will exempt first time buyers for properties under $400,000. With the average price of a property in Toronto at $359,000 in 2007, how many people will actually be “exempt”?
- Rental Market: How many people will elect to lease a condo or rent an apartment rather than pay the new tax?
- Realtors Reducing Commissions:With everybody pointing fingers, it wont be long before politicians, and/or the general public will suggest that Realtors should pay land transfer tax since we all make such “huge” commissions.
- Financing the Tax: On a $1,800,000 house, the tax was $32,000, and now will be $64,000. But this amount can NOT be financed through mortgaging, and must be paid for at closing with out-of-pocket dollars. It won’t be long before the lending community and insurers come up with a product to include the tax in the borrowers financing.
- Renovations: Expect to see a lot more people renovating their existing homes rather than purchasing new ones. The cost to transfer ownership will become more expensive, which will make the option of renovating look all the more attractive and affordable.
- Condominium Buyers: The politicians say that all transfers of ownership after of January 1st 2007 will incorporate the new tax, but not agreements reached before the date. But since politicians have been known to change their minds, what happens if they decide that any deal closingafter January 1st is taxable? What about pre-construction condominium buyers that purchased in 2004, 2005, 0r 2006 but whose deals close in 2007 or beyond?
- Decrease in Sale Prices: How many buyers will suggest that the sellers effectively pay the tax by asking for a 1.5% “rebate” or reduction on the final sale price?
- Canadian Real Estate: What’s to stop the Mayor of another large Canadian city from trying asking for a similar tax for the residents of Vancouver, Calgary, or Montreal, citing Toronto as the “working example”?
The tip of the iceberg came this past week with a small article in The Toronto Post where there was a suggestion that after the City of Toronto passes this new tax, the Government of Ontario will start the ball rolling on legislation to incorporate PST on the sale of new homes! But don’t worry, the tax will be “Blended” so that nobody notices the PST in addition to the existing GST.
I suppose it could be argued that if this tax didn’t pass, then Miller would just make up a new tax somewhere else. But surely, any other “new tax” would be better served outside the industry that helps fuel the Canadian economy, wouldn’t it?
King David Miller.
What do you have to worry about?
Certainly not your job!
And when your kids buy their first $400,000 house, and pay DOUBLE the tax, maybe you can just give them a loan using some of the money you’ve stolen from all of us hard-working tax-payers…