No one wants to get audited, but it happens. If it does happen, though, you’ll want to be prepared. Today we’re going to talk about the red flags CRA looks for and how to avoid waving those flags, as well as how to prepare for an audit, should it ever occur. As with most things in life, the more prepared you are, the easier the situation is to deal with.

3 of the Most Common Audit Red Flags

Here are three things CRA is on the lookout for:

1.    Are you self-employed? CRA watches self-employed, small business owners more closely. Even though DIY tax software is pretty thorough, if you run your own business you might want to have an accountant look over your finances to make sure everything looks right.

2.    Are there two of you claiming the same things? Sometimes couples, especially those who have been recently divorced, claim the items twice. Doing so can trigger an audit.

3.    Are your tax claims consistent? This applies to everything, including deductions and charitable donations. Although you may have more to give some years, being too generous could trigger an audit. Likewise, too many deductions may also trigger an audit. 

Top 5 Deductions on the Red Flag Watch List

According to a Moneyville.ca article, these are the top 5 items that CRA will double check for inaccuracies.

Line 232 – Other deductions - Apparently, many Canadians try to deduct items that should not be deducted, such as funeral costs, legal fees and wedding costs. 

Line 315 – Childcare amount - While you can claim a dependent over the age of 18, you can only do so under certain circumstances. CRA watches this line carefully for those who are claiming dependents who aren’t actually dependent. 

Line 330 and 331 – Medical expenses – Moneyville says this section can be confusing and suggests that tax filers read CRA’s guide carefully when it comes to medical expenses. 

Line 319 – Student loan interest – While you can deduct interest paid for your student loan interest, this doesn’t include a family loan or your line of credit. Only qualified students loans count.

Lines 321 and 322 – Education and textbook amounts – Be sure to claim for the calendar year, not the academic year. Moneyville says, “If the number of months you are claiming doesn’t match the number of months you were a student the red flag will be raised.”

Preparing for an Audit

Preparing for an audit is much easier than it sounds. If your taxes are indeed accurate, then you have nothing to worry about – unless you can’t prove that they are. Keep receipts and documentation organized and on-hand. If you can’t prove it, don’t claim it.

Here’s what the auditor will look at:

Income – CRA will compare the amount you reported with your bank statements and deposits. They’ll also look over your sales records, receipts and invoices. It is in your best interest to keep a written record of any money you received as a gift. Without proof, you may find yourself paying tax on them.

Interest and loans – When the auditor comes to visit, they will want to look over all of your loan paperwork, including deposits, bank statements, credit card statements, cancelled cheques and receipts. This is especially important if you own a small business, as you can deduct interest on business-related loans.

Payroll – Regarding payroll, auditors will examine everything, including:

• Cancelled checks
• Tax returns
• Deposits
• Business records
• Any records showing provincial, federal and social security withholding
• Medicare taxes
• Advance earned-income credit
• Unemployment compensation
• Workers’ compensation premiums
• Salaries and bonuses paid to owners

Expenses and deductions – This section is carefully watched by CRA, especially if the numbers change substantially from year to year. Be sure to keep a log of travel expenses, meal and entertainment expenses and business expenses – and make sure that they’re legitimate.

Other – If an auditor comes to inspect your business, they will likely look into your personal finances as well. Be prepared to show documentation for both.

The auditor will likely compare your lifestyle to the income you presented to determine whether or not the two are compatible.

Your Chances of Being Audited

There’s really no way to avoid an audit; unfortunately, it’s not just about red flags. Every year, CRA randomly selects individuals and businesses for audits. The only way to avoid trouble is to make sure you do it right the first time. If you have questions, ask. If necessary, hire a small business accountant. They’re worth every penny in the long run. And keep great records. It’s ok to make a mistake. It happens all the time. The more organized you are, though, the fewer mistakes you’ll make. The fewer mistake you make, the less likely you are to be audited.

Good luck with this year’s taxes!

The deadline to file your personal income taxes is only a few weeks away and many of you might be scrambling to get all your important tax documents together.  To ease your pain here are four mobile apps that can help make your tax refund experience more bearable. The best part, if you start using them all year long filing your taxes next year will be a cinch.

Go! Tax Canada

This iPhone app claims to be the easiest way to complete your taxes and was designed by income tax specialists with years of experience. You can photograph all your tax documents for submission allowing you to retain the original documents. Your tax return is prepared and filed with the Canada Revenue Agency by experienced tax professionals. A complete summary of your tax return is provided to you upon completion.  You can ask questions directly through the app.  Its free but the tax preparation charge starts at $24.95.

The Canada Tax Calculator

This Blackberry app estimates Canadian income and payroll tax (excludes Quebec). You start by entering your income and location to see the average tax paid, total provincial tax, and total federal tax. The app also allows you to play with the results by seeing what would happen if you had more or less deductions. You can also see what claiming a spouse or dependents would do to your taxes.

Shoeboxed

Many of us have the overflowing shoebox filing system full of receipts that we go through during tax time. Understandably this can be a very difficult ad inefficient way to keep track of all your documents.   For tax time Shoeboxed makes it easy to organise all your tax documents virtually. All you have to do is take a photo of your receipt and the app enters the date, total, payment type, store, and category. It will send an expense report to your email and upload it into various accounting software such as Quicken or QuickBooks.

TurboTax SnapTax

This app is for a very specific customer. Its great for iPhone users who have  just T4 slips, don’t have children or dependents, are under the age of 65, have no RRSP contributions or charitable donations and don’t live in Quebec, the Yukon or North West Territories. One reviewer claims it took him 10 minutes to file his taxes using this app.  First you snap a photo of your T4, than answer a few simple questions lastly review, pay and submit using NETFILE. The returns start at $9.99

Some things to keep in mind

Remember when preparing your tax refund the burden of making sure the information is clear and correct is on you, using an online mobile app can streamline the process and keep your receipts organised, but make sure you go back and check that all the information is correct and detailed properly. The general deadline to file individual taxes is April 30^th, 2012. Get more information on the CRA website and check out this video Expert Tips for Filing Your Personal Taxes.

The Registered Retirement Savings Plan (RRSP) deadline of February 29 (one more day thanks to the leap year!) recently passed. Were you one of those people making a late night appointment with your banker or investment advisor to top up your savings? If you were, did you feel a little like the student cramming for an exam — a student who would have been better of studying less over a longer term?

Yes, the same rules apply. Rushing to deadlines when it comes to tax incentives is not the best approach. Having an all-year plan when it comes to RRSPs, Tax Free Savings Accounts (TFSAs) and Registered Education Savings Plans (RESPs) is much smarter. Why? You’ll save more money, better see the big tax picture and generally make better financial choices.

To do now: RRSP

Plunking down a big RRSP payment in the last days of February is great for your taxes, but it’s not ideal for building your retirement wealth. That’s because the money was not sitting in the plan growing over the months of the year. That’s why most financial advisors recommend putting a healthy amount in each month, so your portfolio has those months to grow.

Donating throughout the year gives you a chance to plot out things like maximizing your contribution room. Your contribution room is the amount you’re allowed to give to your RRSP each year without penalty. That amount is either 18 per cent of what you made in the previous year or the RRSP contribution limit for the given year. The limit for 2012 is $22,970. As well, you can carry forward any room from previous years dating all the way back to 1991. You can figure out what your carry-forward room is easily by looking on your Notice of Assessment.

Meanwhile, if you plan now you can make an estimate of what your income will be for 2012 and have your accountant or advisor do the math to make sure you’re getting the maximum tax relief from your contributions as every dollar you contribute reduces your taxable income.

Utilizing things like spousal RRSPs (where the higher income spouse “gives” to the lower income spouse so the tax benefits go where you truly need them) are easier when you are looking ahead.

You still may do a top-up in February next year to make sure 2012 will go as planned. But that money might be to offset extra, unexpected income, not become your entire year’s tax planning.

To do now: TFSAs

As you are mapping out your RRSP plans for the year, don’t forget the value of the wonderful TFSAs. They’re a really useful tool for saving money for a future renovation or vacation as well as retirement.

These accounts truly are tax-free: you don’t pay taxes on the money you earn inside the accounts and you don’t pay tax on the money when you withdraw it.

When you are making long-term tax and retirement plans, they can help. For instance, if you are looking at a retirement with a high tax rate (say you have a teacher or government worker in the family with a great pension), you can use TFSAs to put aside extra savings for retirement and you won’t get dinged so badly tax-wise in your retirement years. As well, people with relatively low incomes who don’t need the RRSP tax breaks can use TFSAs to sock money away. And in general, since they are registered programs and you must call the bank or your advisor to pull money from them, they are simply great savings devices.

To do now: RESPs

I don’t know about you, but I have no idea if my kids’ RESPs are doing what they should. I just never check: but this time of year is an excellent time to do so. Make sure you are properly registered to get the Canada Education Savings Grant and the Canada Learning Bond and that you are putting enough money into your child’s plan to get the maximum amounts. See Revenue Canada’s web site here for more information.

Just like an RRSP, an RESP grows faster if you give money throughout the year. That means putting away a small amount ($50 to $75 a month, for instance) to maximize your savings.

To do now: check your investments overall

While you’re doing all this investment spring cleaning, take some time to look over the paperwork your bank or investment advisor is sending to you to see how well your investments have been doing over the last year. Book an appointment to make sure the savings accounts, money market funds and mutual funds that hold your money are doing well, or at least well enough. Talk to an expert about what’s going on in the markets and what’s expected to happen this year. Make sure you are getting your money’s worth in terms of fees and the like.

Saving for the future is a never-ending responsibility. It would be nice if the business just took care of itself. But it doesn’t and thinking about your approach once a year, sadly, is just not enough.

As the saying goes, the only sure things in life are death and taxes. And, unfortunately, the former won’t allow you to escape the latter. If you’re self-employed, for example, and die still owing outstanding installment payments, the Canada Revenue Agency will come to collect from your estate if your family doesn’t take care of it first. But what happens to your other debts, like your mortgage and credit cards, when you die? Here’s an overview.

Note that various credit card companies and lending institutions may have unique policies in place so you should consult with your specific debt-holders to verify details. The best advice for planning for your eventual death – yes, we’ll all die sooner or (hopefully) later – is to have a legally registered will. Dying without a will can be a costly hassle for your surviving family members to sort out. See also “Protect Your Family” below for information on insurance policies.

Credit Card Debt

First, the good news: any debt you have on credit cards solely in your name will typically be written off as a loss by the lending company should you die. They’re considered unsecured creditors and would be at the back of the line of debt-holders trying to collect from your estate.

If, on the other hand, your credit cards are joint accounts with your partner or spouse, he or she will be responsible for continuing to make any payments owed. (After your death, one of the many things on your survivor’s to-do list will be updating any accounts to take your name off them to eliminate the risk of fraudulent activity being carried out in your name.)

Mortgage and Car Loan Debt

Mortgages and car loans, however, are considered secured loans and the lenders will come after your estate to ensure they’re paid in full. Odds are, these larger purchases were co-signed by you and your spouse anyway so the surviving person can continue to make the payments as before. But if they wouldn’t be able to do so without your income, you need to read the next section.

Protect Your Family

If you do have a substantial amount of debt that your spouse and family may end up being held accountable for, you should have a plan in place to pay for that. Your best bet is an insurance policy.

What You Might Not Know About Mortgage Insurance

Whenever you sign up for a mortgage, you’ll be offered a “mortgage insurance” policy. Decline it. Mortgage brokers like these policies because they pocket an extra commission, and they do make it sound enticing to have your mortgage instantly wiped out should one partner die. The catch is that while the payments may be fixed, the actual value of the payout declines as you pay off your mortgage. In other words, year after year you’re making the same payment for a continually decreasing amount of money should you need to collect the insurance.

Life Insurance is the Better Option

You’re better off with a standard term life insurance policy. The payout is non-taxable and your surviving spouse is free to use it however they see fit. They could, for example, use the funds to pay off any high-interest debts, and set aside a nest egg to cover the mortgage payments and other ongoing expenses while they adjust to their new life.

Likewise, credit card companies offer insurance plans tied to their cards that cover you in the event death, illness, or unemployment make it difficult for you or your partner to make your payments. Again, this probably isn’t the best path to take. The rates are based on your outstanding balance and if you’re already having a hard time keeping up with your payments, this is just another way to keep the debt spiral swirling. You’re better off contacting an insurance broker about a disability insurance plan that covers all your living expenses – not just a single credit card bill.

One of the secrets to a successful marriage is compromise.  Like many others of the female persuasion, my wife likes to shop. Like many other men, I don’t. (I think I’d rather go to the dentist than set foot into another mall.)

So, early on in our relationship, we worked out a compromise: She was free to go shopping as often as she’d like, as long as I didn’t always have to get dragged along. And she gets free rein to buy household items like dish sets and clothes for the kids without having to run them by me, and I get a vote on big ticket items like bedroom sets and down-filled winter jackets (who knew those things cost so much?!?).

But both of us agree that faced with the option of visiting a U.S. shopping mall this coming Friday, the day after American Thanksgiving, we’d rather have a root canal, without anesthetic, while having our toenails plucked out.

They don’t call the biggest shopping day of the U.S. calendar Black Friday for nothing.

Black Friday’s Black Eye

If you’ve somehow managed to miss the hype over this crazy event, our voyeuristic, capture-it-all-on-film society provides plenty of opportunities to get up to speed.

Go to Youtube and search ‘Black Friday Stampede’ to see people getting trampled rushing into stores when they open in the wee hours of the morning.  Observe customers getting into screaming matches, shoppers literally breaking store doors down to swarm in, people yanking items out of each other’s hands, and some ultimately ending up in fistfights over the discount goods. (Note: expect some pretty harsh language!)

Really, who in their right mind would wade into that mess just to save a few bucks on Pop Tarts and memory sticks?!? Particularly, when you can get some pretty awesome deals without even leaving your home on the following Cyber Monday.

What is Cyber Monday?

The term “Cyber Monday” apparently originated in 2005 on the site Shop.org, to denote a spike in sales that online retailers had started to notice on the first working day after the holiday weekend.

Since then, the online sales craze has steadily grown as most major retailers bookend the weekend with deep-discounts at their bricks-and-mortar stores on Friday, followed by online sales on Monday. A Shop.org survey found that more than 100 million Americans – nearly one in three U.S. residents – hit the online malls on Cyber Monday in 2010.

Surf Shopping

While oftentimes Canadians can justifiable feel snubbed – or worse – by our neighbours to the south, savvy American retailers have caught on to the fact that there are a few million of us up here (almost 35 million, in fact), looking for a bargain wherever we can find one.

So, in the pursuit of the mighty dollar, U.S. or otherwise, many retailers offer incentives to lure in Canadian customers. Offering Canadian money at par isn’t the deal it used to be, so watch for offers of free cross-border shipping or, for residents of Ontario and the Maritimes, a chance to avoid the dreaded HST.

But, buyer beware, the Canadian taxman can and will try to get you. Canada Customs will stop random packages shipped from out-of-country retailers and add in the applicable taxes (plus a “service fee” for doing so). And some shipping companies (UPS notably) tack on their own brokerage charges for items that go through customs, chipping away at the savings you though you were getting.

So before you order online from the U.S. on Cyber Monday, read the fine print in the shipping agreement to see if the company includes covering duties in their cost.
Or, to avoid the risk of unexpected additional costs when your package arrives at your door, why not shop online in your own backyard?

Bring Cyber Monday Home

Intuitively enough, electronics retailers like TigerDirect.ca and FutureShop.ca lead the pack in terms of how long and how many deals they offer on Cyber Monday.  And large U.S. chains, like the Old Navy–Gap–Banana Republic family of clothing retailers, and Walmart have extended at least a portion of the U.S. online experience to their Canadian portals.

Others have jumped on the bandwagon too. In 2010, Chapters.Indigo.ca, for example, offered 20 percent off of gifts and toys, and Softmoc Canada promoted up to 70 percent discounts on shoes and boots last year.

In short, if you have a favourite Canadian store for shopping, it’s worth checking out their website that day (Monday, November 28, 2011) to see if they’re participating in Cyber Monday.  Oh, and if you plan on making a trip across the boarder this Friday, wear running shoes and be careful!

The deadline is almost here! You’ve got about three weeks to organize all your paperwork and get your tax forms in to Revenue Canada.

But instead of rushing through the forms this year and focusing on just getting the annoying thing done, carve out a bit of extra time to make sure you’re really getting all the credits, deductions and rebates you can.

While zipping through your return is faster and perhaps less complex, you could be missing out on saving hundreds or even thousands this year, and in the years to come.

For me, hiring an accountant is more than worth the few hundred bucks he charges. But since I am self-employed, and that brings with it a huge list of extra deductions (and opportunities to make costly mistakes!), I’m not sure I could pull off my return alone anyway.

Even if you hire someone, or used a skilled family member to do your taxes (my brother did mine for years), it’s still helpful to know where your tax savings lie. You can use this knowledge to check up on your tax filers (if he or she misses some big ones, you know this person doesn’t totally know what they’re doing). More importantly, understanding your taxes means you’re prepared all year and you’ll do a better job of collecting the appropriate receipts.

(Here’s an FYI to help out. Tax credits reduce how much tax you pay directly. A $100 credit takes $100 off your taxes. But a deduction reduces your taxable income, so how much less you actually pay in taxes has to do with how much you earn and your tax rate.)

Here’s some tax-saving programs you should not be missing:

Family write-offs

Spousal tax credit. If your partner is unemployed, a stay-at-home parent or makes a very low income, you can claim a spousal tax credit. This is a very big credit, the same as a personal credit — $10,382, for the federal portion alone, plus $7 to $14,000 more, depending on the province you live in. It’s also important to fill out your tax form properly and put certain deductions, such as child care expenses, on the lower income spouse’s return.

Childcare expenses deduction. Be sure you get all your childcare in here. If you use a regular babysitter, even someone in your neighbourhood, get a receipt and you can write that off too. As well, be sure you’ve applied for the Universal Child Care Benefit and the Canada Child Tax Benefit, which lead to mail-out rebates throughout the year.

Children’s fitness amount. With the price of kids’ activities these days (yes, I’m talking about hockey!) this credit is a boon to families who want their children to be active, but worry about the cost. Since you can get up to $500 back per child, it’s important to collect those receipts every time you sign them up for another activity.

Ones we’re just not using

Medical expenses. One of the least used tax credits. Possibly because the math is somewhat confusing. You can get a credit for expenses that exceed either $2,024, or 3%, whichever is lower, up to a set maximum. What’s also confusing is you don’t have to present receipts for medical expenses within a calendar year, instead you can choose the most expensive 12 months ending in the tax year you are filing. Oh yeah, and you can pool the family’s expenses and put it under the lower income spouse. You write-off medical expenses for other dependants like older children and extended family members on a separate line. Whew! This is a great credit, but one you should tap into after doing some reading or hiring an accountant.

Public transit. If a family member takes transit to school or work daily, their passes can lead to a tax credit. You do need to buy at least four consecutive weekly passes, and you can only write-off your children’s passes if they are under 19.

Home lovers

First-time homebuyers credit. If you just bought a home or are looking at purchasing your first home, do not miss this one! This credit is worth $5,000, and all you need to have done is buy your first home (yes, it can be a duplex or a condo). People with disabilities can also apply, even if this is not their first home, as long as the new place better suits their needs.

Taxes can be confusing, and taking advantage of all the credits and deductions available to you may take a bit more work and time with the calculator than you’re used to. Consider hiring a professional or using qualified tax software if you’re stumped. At the very least do your research on each credit you are applying for to be sure you’ve got it right. And as 2011 continues, remember to keep as many of your receipts as possible. You never know what could be a great write-off next spring.

Diane
Writer for RateSupermarket.ca

Tax season is upon us and with all the options out there, it’s hard to know whether you should go it alone, or hire an expert. Ask yourself these questions and the answers should guide you in the right direction.

1. How complicated will your tax claim be?
2. Are you confident handling the paperwork on your own?
3. How much are you willing to pay?
4. Are you self-employed?
5. Did you move outside of Canada last year?
6. Did you invest in the stock market?
7. Do you qualify for government benefits or deductions that you might not know about?

Know when to seek the help of an expert

Canada Revenue Agency reports that some 10 million Canadians are choosing to do their own taxes. But are they doing them correctly? According to a recent tax survey, 25 per cent of Canadians are actually filing their taxes incorrectly. Many are not taking advantage of credits or deductions, which means that they paid more in taxes than was actually necessary. If you don’t have a good grasp on tax deductions and credits, talk to an expert.

For those of you who earn income from rental property or run your own small business, your taxes might be too difficult to do on your own. If you have questions, it is recommended that you consult a tax expert.

Getting organized

Whether you’re going it alone or hiring a professional, you’ll need to be organized. Gather all of the necessary documents together. Remember that your accountant gets paid by the hour. Minimizing their work will save you money. The documents you’ll need include:

• T4 slips
• T4A commissions & self-employed income
• T5013 Partnership income
• T3 income from Trusts
• T5 Investment Income
• RRSP contributions
• Charitable donations
• Medical & dental receipts
• Childcare information
• Revenue & business expenses
• Business use of your car
• Operating expenses for your car
• Driving log for business kilometers
• Business use-of-home details (if you work from home)
• Last year’s assessment

The DIY way

If you’re computer savvy and have the time and knowledge, doing your own taxes with certified tax software might just be the way to go.  There is a wealth of products to choose from. Find a program that provides guidance through the process, as well as afterwards. If CRA has questions later, or you get audited, you’ll want to know that the tax software company that you chose will be there to help when you need it most.

Shopping for Canadian tax software programs

Before you can begin, you need to decide whether you prefer the Internet web application download or the in-the-box variety. Some companies are available in both formats. Make sure that whichever one you choose will work with your operating system. It’s also a good idea to visit CRA’s Netfile website to ensure that your product is CRA-certified.  Here are a few options:

1. Turbotax Canadian Tax Software (Quicktax)

There are three versions of this product available for Windows, including TurboTax Home and Business, TurboTax 20, and TurboTax Business Incorporated. The software is user friendly, allowing you to complete your taxes quickly and easily. It asks questions in plain English and allows you to run multiple tax scenarios.

2. Cantax Canadian Tax Software

There are a number of versions of this product as well, including T1Plus Home Office and Cantax T2 (for corporate returns). Cantax’s software was originally designed for tax professionals, but it does have a single screen for data entry, rather than a number of pages. It also uses Pathfinder, making it easier to move between forms and your return.

3. TaxTron Canadian Tax Software

Formally GriffTax, this software is quick, easy, and fully bilingual. Also, it is still the only fully functional, user-friendly software available with both the individual (T1) and corporate (T2) versions for Macintosh. There is also a version of this software available for Windows.

4. GenuTax Canadian Tax Software

An amazing feature about this product is that you only have to buy it once. In subsequent tax years, GenuTax allows you to update the software for free. You can also prepare and file up to 20 tax returns for the current tax year, meaning that you only have to purchase one per household. There are downsides to this product, however. It can’t be used to prepare and file corporate taxes, and cannot be used if you live in Quebec.

5. UFile for Windows Canadian Tax Software

This software only allows you to do personal tax preparation (T1), but not corporate tax preparation (T2). It is, however, easy to use. You enter your tax information using an interview interface. It has the capability of handling any kind of self-employment income and can calculate capital gains. It can also be used by Quebec residents and offers online income tax preparation and filing.

Melanie
Writer for RateSupermarket.ca

So potentially higher interest rates and additional taxes are on the horizon – sounds like a double whammy right? You see, the additional tax is going to affect everything we currently don’t pay PST on: groceries, haircuts, clothes, etc. This also includes most of the home purchasing closing costs such as lawyer fees, home inspections and real estate commissions. To top it off, the current 5% GST we pay on new homes will now increase by 7 – 8%. Homeownership is going to get a little more expensive come July 2010.

So what exactly is the HST and how will it affect the provinces of Ontario and BC?

The HST is a sales tax that combines both the PST with the GST. In Ontario, this tax will be 8% PST + 5% GST equalling a new 13% HST. In BC, this will mean adding up the existing 7% PST + 5% GST resulting in 12% HST. When the new tax becomes effective, GST/PST will be completely eliminated and everything will instead require HST, minus certain exempt items that can be found on the Revenue Canada website.

While the HST will take effect in BC and Ontario on the same day, key differences exist between how the tax was introduced and the rebates each province will receive.

In Ontario, Dalton McGuinty introduced the HST in January 2009. Despite negative reactions, it was announced in March 2009 that the HST would take effect in July 2010. When this tax was introduced, the public was also promised a family rebate to “offset” some of the tax burden. Rebates introduced to counter balance the effect of the sales tax totals $1,000 for families with an income below $160,000 and $30 for singles with an income below $80,000.

While Ontario has been preparing for the July 2010 transition to HST since March, BC didn’t make this announcement until this past July. The announcement came as a complete shock to businesses and residents. There was no warning or consultation and no family or individual rebate offered.

How will the HST affect real estate

Regardless of when it was announced, both provinces will face increased taxes. Resale homes will be exempt but new home sales will be affected. However, in both cases, the services required to run a home and sell a home such as utilities, real estate commissions, home inspections and legal fees will increase by 8% or 7% (depending on the province you live in).

For new home sales, according to the Ontario Real Estate Association, the HST will add $1,747 to $2,297 to a home costing less than $400,000. Here is a breakdown of the typical increases we’ll see in both Ontario and BC:

To help ease the burden, both the Ontario and the BC governments have promised rebates for all home buyers purchasing new homes regardless of the price of the house (resale homes don’t qualify).

Rebates up to $24,000 are promised on the first $400,000 of the purchase price. This rebate is also extended to new residential rental properties.

Yes, all new homes, regardless of their price, are going to be seeing a maximum rebate of $24,000. However, the price for a new home will increase by 8% in Ontario and 7% in BC. Meaning, a $400,000 house will still increase by approximately $8,000 after the rebate, plus you’ll have to pay the additional taxes on top of the closing costs.

Other areas being affected by HST

Residential landlords will see an increase in the costs to house tenants. Items required to operate a building such as maintenance, electricity, plumbing, etc., will now be subject to the additional tax. Landlords may be forced to increase rent as a result.

The home construction industry is also expected to suffer. All new homes are subject to the combined tax and builders are worried this will cause the market to collapse when it was just getting back up to speed, even with the promised rebate. The past few months have been seeing extremely high rates of housing starts, rising to the highest levels in March. Starts were up to 55,700 in October (up 14.8% from September) in BC and up 13% in Toronto reaching 34,200 in October.

While builders have seen a promising recovery in their industry over the past few months, they’re now worried consumers will once again crawl back into hiding after July. Therefore, many are working overtime to get projects done before the deadline.

The HST is arriving at a time when we’ll still be recovering from the hard-hit recession. Yes consumer confidence in the real estate market has increased but this has been a result of lower prices and record-low interest rates. Now with the new tax coming at a time when interest rates are predicted to go up, new home sales and starts may once again stagnate.

The real estate market experienced a depressing winter last year, with real estate agents and lawyers losing out on a lot of money. While this winter looks more promising, lawyers, agents and builders will have to work to maintain consumer confidence into the summer; whether this is through discounts, packaged deals or attractive home prices. If you’re thinking about purchasing a new home, you may want to look into it now so you’re not caught in the potential crossfire between hiked interest rates and added tax.

Caroline
PR@RateSupermarket.ca