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Tax will add $2,000 to new home: builder.

Tax will add $2,000 to new home: builder

Don't start Gordon Thompson talking about the Goods and Services Tax (GST).

A telephone call for a quick comment from the president of the Canadian Home Builders' Association quickly turns into a barrage of objections.

"It's definitely going to have a negative impact on the affordability of housing right across the country," says Thompson of the GST.

The government has set the GST rate on new housing at 4.5 per cent, instead of the seven per cent for most goods and services. The GST won't be applied to home resales.

For Northern Ontario, Thompson estimates it will add close to $2,000 to the cost of an average-priced new home.

For higher cost areas such as Toronto and Vancouver, Thompson predicts the increase will be close to $9,000.

Despite the lower rate, the national association believes the 4.5-per-cent tax breaks a promise made by the federal government.

Thompson notes the association negotiated a commitment from Ottawa over a year and a half ago that the GST's effects on housing affordability would be eased.

"They went as far as saying that their feeling was that no one should be paying more tax after the GST than they were paying before the GST, and that's a commitment which they just haven't lived up to."

Thompson explains that the government has concluded that the current federal sales tax works out to a real 4.5-percent rate for new housing.

However, he takes exception to the government's calculations, claiming the current level of taxation is less than 4.5 per cent.

"Their numbers are incorrect. We've been arguing with them for a year now and they won't show us how they calculated it. The numbers are closer to two to 2.5 per cent."

Thompson says the home builders' association is continuing to negotiate with Finance Minister Michael Wilson.

The industry is already facing a problem with the affordability of housing, and the situation will be worsened by the GST, says Thompson.

The reduced 4.5-per-cent rate doesn't apply to investment property, which is not the buyer's principal residence, or to cottages, which will be subject to the full seven-per-cent tax.

In addition, the full seven-per-cent rate will be charged on homes valued at more than $400,000.

"We don't think that's fair from a taxation point of view," argues Thompson. "The rebate should apply to all new housing, regardless of price."

The GST also applies to the renovation market.

Previously, the federal sales tax was paid on materials which renovators purchased for jobs. Under the GST, they'll have to pay tax not only on the material, but on labor as well.

What impact the GST will have on home sales is still a matter of debate.

Thompson notes some economists feel there will be a slight increase in new home sales across Canada this spring and summer as people buy early to avoid the tax.

"I personally don't think it will happen to the extent that the economists are saying that it will," he says.

Some economists predict as many as 10,000 home sales in Canada will be moved ahead from 1991 and 1992 into 1990, according to Thompson.

"I would think the number is probably going to wind up being more about half that."

Thompson predicts sales of higher-priced homes will increase prior to implementation of the tax.

"They (buyers) may be more inclined to make that purchase this year as opposed to waiting because the GST starts to get pretty significant the higher dollar value you go."

However, Thompson, who is also president of Candev Building Corporation in Toronto, notes sales also depend on interest rates and the overall well-being of the economy.

"If people think that house prices are likely to go up, they buy," he explains. "If they think house prices are going to go down, they don't buy. It's as simple as that."

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Title Annotation:Construction Report; Gordon Thompson of Canadian Home Builders Association on Goods and Services Tax
Author:Bickford, Paul
Publication:Northern Ontario Business
Date:May 1, 1990
Previous Article:Safety legislation draws mixed reaction.
Next Article:Home builders prepare for poor 1991.

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