Ontario's Improved Plan for HST on New Housing "Intelligent Tax Reform": C.D.
Howe Institute

TORONTO , Oct. 29 /CNW/ - Ontario's revised plan for the tax treatment of new housing under a Harmonized Sales Tax (HST) is a significant improvement over its original proposal in the 2009 Budget, with lower economic cost and less impact on homebuyers' decisions, according to a study released today by the C.D. Howe Institute.

In "New Housing and the Harmonized Sales Tax: Lessons from Ontario," authors Bev Dahlby, Michael Smart and Benjamin Dachis say the proposed adoption of an HST in Ontario, as well as in British Columbia, represents intelligent tax reform that will benefit the economy as a whole; but the impact of the tax reform on new housing has been a thorny issue. New housing is not directly taxed under provincial retail sales taxes (RSTs), but some sales taxes are embedded in the cost of construction. The HST directly taxes new housing, but there are rebates to make the tax change effectively neutral on housing under $400,000 .

The revised Ontario proposal, created in response to industry opposition to the scheme, eliminates the original proposal's "recapture" of rebates for homes between $400,000 and $500,000 and instead adopts a "flat tax" on homes above $400,000 . British Columbia has adopted a similar approach to Ontario.

As policymakers in other provinces consider adopting an HST, they, too, must consider different treatment for new housing and how their local markets will respond to the HST, conclude the authors.

For the study go to: http://www.cdhowe.org/pdf/backgrounder_119.pdf

For further information: Bev Dahlby, Professor of Economics, University of Alberta; Michael Smart, Professor of Economics, University of Toronto; Benjamin Dachis, Policy Analyst, C.D. Howe Institute, [phone]