Ontario`s Blended Sales Tax

[realfortin]

With the new blended sales tax... you`re going to pay an extra 8% on your electricity, your heating, property management, snow plowing etc. The LTB will likely not allow this to be passed on to the tenants.

As a single guy I won`t be getting all those checques either because with rental income I am over 80k.

Go ONTARIO!

 

[navaz]

It is true that there are pros and cons of each tax. Overall for the business community and investment community- it is a better tax- it will help the investment climate where one can put up manufacturing and create jobs. Unfortunately for us that invest in residential properties in Ontario-it will be painful

Maybe-it will help Ontario create industries that will assist Alberta in their challenges to keeps manufacturing costs reasonable so that the oil sector can perform with some certainity and be a win-win for all Canadians

 

[ivit]

[quote name=`realfortin` date=`Mar 27 2009, 10:03 AM` post=`53854`]
With the new blended sales tax... you`re going to pay an extra 8% on your electricity, your heating, property management, snow plowing etc. The LTB will likely not allow this to be passed on to the tenants.

Hi,



I`m considering REIN membership and attending Toronto ACRE program. I don`t have any rental properties, nor RE experience. Of course a lot of questions.

Now the big question is how does the new Harmonized Sales Tax affect RE investors in Ontario?

If you`re going to pay an extra 8% on your electricity, your heating, property management, accounting and legal services, grass cutting and snow removal services, renovation labour etc., will you be able to find property investment with positive cash flow?

Real estate commissions will also be taxed. The Ontario Real Estate Association estimates the harmonized tax will add over $2,000 to the cost of a real estate transaction.



Any comments would be greatly appreciated.

 

[invst4profit]

Although it will be more expensive initially the increased costs will be passed on to tenants. Increased costs, in any business, are always passed on to consumers in one way or another.
Long term tenants will be a liability, however, landlords will pass the increased costs on to new tenants wherever possible.
In the case of smaller units (singles and 2-4 plex) with existing tenants more buyers in Ontario will likely request that the buildings be vacant at time of purchase if rents are not at market rates.

Hopefully it will be business as usual within a couple of years assuming the economy begins to rebound.

 

[trev]

Hi,

[/size]

I`m considering REIN membership and attending Toronto ACRE program. I don`t have any rental properties, nor RE experience. Of course a lot of questions.

Now the big question is how does the new Harmonized Sales Tax affect RE investors in Ontario?

If you`re going to pay an extra 8% on your electricity, your heating, property management, accounting and legal services, grass cutting and snow removal services, renovation labour etc., will you be able to find property investment with positive cash flow?

Real estate commissions will also be taxed. The Ontario Real Estate Association estimates the harmonized tax will add over $2,000 to the cost of a real estate transaction.



Any comments would be greatly appreciated.








On an average single family home:

Heat & Hydro is payed by tenant- no cost to you.
If you do include it :$200.00 / month x 8% extra tax = $16.00 / month
Management $1400 rent x 6% fee = $84.00 x 8% extra tax = $6.12 / month
Lawyers fee on purchase $1100.00 x 8% extra tax = $88.00 one time cost
R/E commission-on purchase, this is the sellers expense
R/E commission on sale- @5% commission the additional cost is $400.00 / $100,000 of sale price

Not very significant on the big picture

Have you run numbers on a specific property including the add. tax, or are you just talking yourself out of it in advance?
This tax is not effective until sometime in 2010, if it happens. Thats right.....IF IT HAPPENS.
It`s hard to imagine McGuinty saying one thing about tax, and do anther.

Search this forum for - Reasons not to invest in real estate
It`s easy to find a reason not to do something.

 

[housingrental]

RE:

"Although it will be more expensive initially the increased costs will be passed on to tenants. Increased costs, in any business, are always passed on to consumers in one way or another."

I strongly disagree with part of the above post. Portions of increased costs (possibly 99% tenant, 1% landlord OR 99 % landlord 1% tenant OR 50% lanldord 50% tenant , etc..) will be absorbed by both parties in a transaction - the amount will varies depending on particular segments relative marginal propensity for the service / product. BOTH landlords and tenants will be worse off with a blended sales tax.




QUOTE (invst4profit @ Apr 2 2009, 07:28 AM) Although it will be more expensive initially the increased costs will be passed on to tenants. Increased costs, in any business, are always passed on to consumers in one way or another.
Long term tenants will be a liability, however, landlords will pass the increased costs on to new tenants wherever possible.
In the case of smaller units (singles and 2-4 plex) with existing tenants more buyers in Ontario will likely request that the buildings be vacant at time of purchase if rents are not at market rates.

Hopefully it will be business as usual within a couple of years assuming the economy begins to rebound.

 

[invst4profit]

Obviously some tenants will be paying the increase on such items as utilities which is another very strong argument for landlords to avoid owning all inclusive properties.

I am talking about the increases directly attributed to landlords.
Why would a landlord not pass on all there increased costs to "new" tenants assuming of course that the rental market rates will carry.
There shouldn`t be a problem assuming the majority of landlords followed suit which I believe would be the case.
It may take a few years for some landlords having slow turnover but ultimately tenant rents should cover the entire increase.

 

[housingrental]

RE:


"Why would a landlord not pass on all there increased costs to "new" tenants assuming of course that the rental market rates will carry."

Because it`s almost never the case that all costs can be passed along to the consumer. If viewed over a long time period where market rents are increasing anyways - than yes the nominal but not real amount is passed.



QUOTE (invst4profit @ Apr 2 2009, 12:34 PM) Obviously some tenants will be paying the increase on such items as utilities which is another very strong argument for landlords to avoid owning all inclusive properties.

I am talking about the increases directly attributed to landlords.
Why would a landlord not pass on all there increased costs to "new" tenants assuming of course that the rental market rates will carry.
There shouldn`t be a problem assuming the majority of landlords followed suit which I believe would be the case.
It may take a few years for some landlords having slow turnover but ultimately tenant rents should cover the entire increase.

 

[invst4profit]

Normal amount, Real amount, You lost me.

I am not sure what your point is but I am certain in the end most tenants rents will increase the allowable amount each year plus "new" tenants will see a increase to cover the new tax costs to landlords.
Once all landlords reach a 100% turnover in all there units all tenants will be covering the increased expenses.
This increase will be in addition to annual rent increases not part of them.

Is that not a real amount?

Annual allowable increases in Ontario do not cover landlords increased costs each year which is why when a unit is vacated rents are adjusted to market value. Rental market values will increase as a direct result of this new tax or we will see fewer investors in Ontario over the long term. Once this tax is implement I believe you will see a jump in rents directly related to the tax.

 

[housingrental]

Sure Greg - Ie so adjusted for change of price level over time - So to answer your question - no that`s not a real amount.

To add to view it from a different perspective

- So lets say if market rent for unit is currently 1000 -
in absence of tax next year market rent for the same unit is 1020-
now lets say with new tax implemented market rate happens to be 1025 -
now lets say tax in aggregate costs owner 10 per unit

The result ?

Both owner and renter is worse off
Owner - Worse off by 5 - Even though rent is 5 higher than alternate scenario, tax cost is 10, owner nets 5 less
Renter - Worse off by 5 - Even though owner has lost 5 in total from the new tax renter is still paying 5 more

Does this clarify ?

 

[invst4profit]

Agreed.
However, in theory, if over time 100% of all additional costs are not passed on to tenants no landlord would stay in business. Costs and expenses continue to rise every year and I also require my income to do the same. If not I begin to fall behind the cost of living and must therefor increase that income through my tenants.
Owners will be at a loss until they are able to raise rent the additional $5 but I believe the market rate, in this case, will directly reflect the entire tax increase.
Time has a way of working things like this out.

I reason, that although there are many factors which drive market rents, something as specific as an across the board tax increase will directly impact that market rate to it`s full amount.

I know I will find ways to pass on the entire increase so as not to feel the loss.
As long as a majority of landlords do the same we will create the desired result.

 

[housingrental]

" Agreed. " - Excellent

" However, in theory, if over time 100% of all additional costs are not passed on to tenants no landlord would stay in business." - No this is not correct re my posts above. 100% of additional costs are NOT passed on to tenants. A portion of additional costs are absorbed by both landlord and tenant. The tenant has less cash after expenses. Holding all other variables constant the result is lower asset valuations as there`s lower net income for owners.


QUOTE (invst4profit @ Apr 3 2009, 10:43 AM) Agreed.
However, in theory, if over time 100% of all additional costs are not passed on to tenants no landlord would stay in business. Costs and expenses continue to rise every year and I also require my income to do the same. If not I begin to fall behind the cost of living and must therefor increase that income through my tenants.
Owners will be at a loss until they are able to raise rent the additional $5 but I believe the market rate, in this case, will directly reflect the entire tax increase.
Time has a way of working things like this out.

I reason, that although there are many factors which drive market rents, something as specific as an across the board tax increase will directly impact that market rate to it`s full amount.

I know I will find ways to pass on the entire increase so as not to feel the loss.
As long as a majority of landlords do the same we will create the desired result.

 

[Mike56]

Greg & Housingrental, I would agree with both of you unless you are involved with social housing were the utilities must be included in the rent to the tenant and there is a rent cap which is in place that does not allow for any increase unless the cap is raised by the municapality that operates the program. With this situation the increase is 100% to the landlord.

Mike