HARMONIZATION ADDS SIGNIFICANT COSTS FOR HOME OWNERS,
RENOVATIONS AND NEW HOME BUYERS
…affordability threatened again.

Saskatoon —January 3, 2008— For the home building industry experience in the provinces
which have already harmonized sales taxes suggests that harmonization will be extremely
detrimental to housing affordability, the industry and the ability to meet market demand.

THE INDUSTRY AGENDA REGARDING TAXATION OF HOUSING

Despite that housing or shelter remains one of the basic needs supporting health and quality of
life it seems that all governments view home owners, renters and housing generally as a
significant revenue stream to support government programs while increasing consumer costs.

Municipalities add costs to new housing through numerous levies, fees and transaction costs
rather than raise the mill rate for services that benefit the entire community. Municipal
governments enjoy alarming surpluses through land costs and permit fees that virtually double
based on the market forces and the value-based calculations of fees.

The entire tax system as it relates to housing must be addressed to enhance the understanding of
the impacts of government imposed costs on housing and affordability. It is imperative that the
various levies, fees, charges and taxes from all government levels be reassessed and rationalized.
Consultations on the harmonization of the provincial sales taxes with the GST may provide
an opportunity for understanding of the government role in the rising cost of housing.

POTENTIAL DISADVANTAGES OF HARMONIZATION FOR THE HOUSING SECTOR

The GST from its inception has had significant impacts for housing.
 • While it lowered the tax payable in materials used for construction, the ultimate
product, the house became subject to a tax which was not levied previously.
 • Since the implementation of the GST, “flippers” and operators in the underground
economy play loosely with the principal residency rules to avoid many
fees and charges including payment of GST, capital gains tax, payroll taxes and
other fees for permits, and workers premiums among others.
 • GST as with other taxes seems to have different treatments for different classes of
housing.
   ⇒ New houses are taxed at different rates while resale homes, including
rentals, are exempt.
   ⇒ Residential rents are exempt from the GST and as a result investors in
residential property cannot use the GST deduction from constructions of
their new building.
   ⇒ On the other hand investors of new commercial / non-residential property
may deduct the same construction costs.
   ⇒ New non-profit housing, government sponsored projects, housing for students,
the needy or disabled receives a rebate of roughly half of the GST.
   ⇒ Sales of new homes not used as a primary residence are subject to full
GST with no rebate.

HARMONIZATION—ATTRACTIVE IN THEORY

In the view of provincial governments there are three significant potential advantages.
1) Potential cost savings in the elimination of administrative costs.
2) Lower costs for business through full application of input tax credits, hence removing the
cost of the PST from the businesses cost base.
3) A revenue grab by provinces may result as sales tax revenue is increased because of the
broader base of goods that are taxable.

HARMONIZATION—DISADVANTAGES FOR HOUSING

Unless there were major adjustments to the harmonized tax rates which apply to housing
both builders and consumers could be significant losers. Principally, the disadvantages
outlined as a result of implementing GST itself would become more severe since the new
harmonized tax applies to more inputs; is treated differently for different types of housing
and costs themselves would become exacerbated as a result of the higher tax rate.

To avoid an increase in the cost of new housing and renovations, appropriate rebates on the
tax payable must be available to new ownership, rental housing and renovations.

General principals to consider before giving harmonization serious consideration are:
• Will the price of new housing be affected?
• Will the costs of rental housing and renovations be affected?
• Will the system increase the administrative burden on business?
• Will industry capacity to build housing be diminished?

The residential construction industry in Saskatchewan holds firmly that harmonization at this
point without consideration of other tax impacts on affordability would cause a significant
dampening of the housing market and economy in Saskatchewan.

This Provincial Government should examine deterrents to housing development and the
economy that are major factors affecting affordability especially:
   • Unreasonable land title fees
   • The education component included in property tax
   • Support for infrastructure in growing municipalities to reduce development cost
charges and fees

Municipal Governments need to examine their role in cost increases including:
   • Tax treatment of different classes of housing
• Development costs charges and levies that offer broad benefits to the entire
community.
   • The fees charged by cities to effectively subsidize programs at the expense of
new home buyers and home owners engaging in renovations.

Clearing the path to a positive climate for housing construction is in the interests of all
communities in the Province.

For more information, please contact:
Alan H.J. Thomarat
Executive Vice President
Canadian Home Builders’ Association — Saskatchewan
Phone: (306) 955-5188

EXHIBIT 1
ILLUSTRATIVE EXAMPLE OF EFFECTS OF HARMONIZATION ON NEW HOUSE PRICES

Provincial Sales Taxes Included in New House Prices

Effective Rate of PST

If No PST Rebate

Estimates of PST in Housing (Exhibit 2)

Exhibit 2 presents estimates of the amount of PST in new house prices in 30 centres across
Canada in 2002 (including the harmonized provinces) from the report Levies, Fees, Charges
and Taxes on New Homes, 2002, prepared for CMHC. The estimates are out of date (2002);
however, the report is currently being updated by CMHC. Associations may use these
estimates (or the updated estimates) as a check on their estimates of the amount of PST in
new houses in their provinces.

EXHIBIT 2

EXCERPT FROM STUDY ON LEVIES, FEES, CHARGES AND TAXES ON NEW HOUSING, 2002

Estimated Provincial Sales Taxes
Typical Modest Single-Detached Houses, 2002

Municipality Price Provincial Percentage of
Sales Tax Price
Harmonized Provinces
St. John’s 130,000 10,400 8.0%
Halifax 140,000 11,200 8.0%
Moncton 120,000 9,600 8.0%
Montreal 145,000 7,272 5.0%
Laval 155,000 7,773 5.0%
Longueuil 140,000 7,021 5.0%
Gatineau 135,000 6,770 5.0%
Quebec City 110,000 5,517 5.0%
Non-Harmonized Provinces
Charlottetown 125,000 5,405 4.3%
Toronto 285,000 5,867 2.1%
Mississauga 260,000 5,256 2.0%
Vaughan 275,000 5,519 2.0%
London 160,000 4,454 2.8%
Ottawa 230,000 5,565 2.4%
Sudbury 150,000 4,234 2.8%
Windsor 150,000 4,117 2.7%
Winnipeg 145,000 4,251 2.9%
Regina 135,000 2,922 2.2%
Saskatoon 145,000 2,965 2.0%
Calgary 175,000 - 0.0%
Edmonton 165,000 - 0.0%
Grande Prairie 130,000 - 0.0%
Burnaby 395,000 5,425 1.4%
Surrey 315,000 5,930 1.9%
Kelowna 210,000 4,452 2.1%
Prince George 160,000 4,072 2.5%
Saanich 255,000 4,827 1.9%
Whitehorse 150,000 - 0.0%
Yellowknife 165,000 - 0.0%
Average 188,833 4,853 2.6%
Source: Levies, Fees, Charges and Taxes on New Housing, 2002,
prepared by Greg Lampert for CMHC, 2003.