- RISMedia - http://rismedia.com -
Realtors Raise Concerns Over Toronto ?Home-buying Tax’
Posted By beth On March 23, 2007 @ 2:48 AM In Finance, Economy & Government Issues,Government | Comments Disabled
RISMEDIA, March 23, 2007-In an open letter to Toronto Mayor David Miller, the Toronto Real Estate Board (TREB) has raised concerns about a possible home-buying tax in Toronto.
TREB's letter provided Mayor David Miller with Realtors® initial input to a City discussion paper on potential new revenue sources. Of particular concern to TREB is the possibility of a Toronto land transfer tax, which would be levied on top of the existing provincial land transfer tax, meaning that Toronto home buyers would be faced with paying this type of tax twice for the same transaction.
"Let's call a spade a spade. A land transfer tax is a home-buying tax. It is a tax charged directly to home buyers when they purchase a property, which is usually intended to offset costs for providing services directly related to real estate transactions. If the City intends to charge a land transfer tax just to raise additional revenue for general municipal services, is it fair to expect home buyers to pay for services that the whole community benefits from?" said Dorothy Mason, president of the Toronto Real Estate Board.
"If the City adopts a land transfer tax, Toronto home buyers will be faced with a double whammy of land transfer taxes – a municipal land transfer tax and a provincial land transfer tax," added Mason.
The provincial government already charges a land transfer tax on property transactions. For the average Toronto home, according to TREB's statistics, the provincial land transfer tax payable is approximately $4200.
"If the City moves ahead with a second land transfer tax of 0.5%, as is being considered, average Toronto home buyers could be faced with paying almost $1900 on top of the $4200 that they already have to pay for the existing provincial land transfer tax, money that could be spent on other expenses when purchasing a home such as appliances. That's an additional 45% in land transfer tax. Even a 0.1% Toronto land transfer tax would represent almost a 10% increase in land transfer taxes. Also, with total closing costs (e.g. legal fees, land transfer tax) usually around 1.5% of a property's selling price, a 0.5% Toronto land transfer tax would represent a 33% increase in closing costs", said Mason.
TREB's letter to Mayor Miller outlined specific concerns about the impact that a second land transfer tax would have for the City.
"Mayor Miller and all of City Council should realize that forcing home buyers to pay a second land transfer tax will have implications for the City. It will make Toronto housing less affordable, and encourage home buyers to choose to live outside of the City, where they only have to pay the land transfer tax once. This could mean more commuting, more traffic, and environmental impacts, like smog, for the GTA", said Mason.
A copy of the open letter to Mayor Miller follows.
March 21, 2007
His Worship Mayor David Miller
City of Toronto
Toronto City Hall
100 Queen Street West
Open letter regarding potential new home buying tax
Dear Mayor Miller,
The Toronto Real Estate Board's (TREB) 25,000 Realtor® members are concerned about possible new municipal taxes that homeowners could face in the City of Toronto. Specifically, a potential Toronto land transfer tax, levied on top of the existing provincial land transfer tax, could have serious consequences.
It is important to point out that a Toronto land transfer tax would be levied on top of the existing provincial land transfer tax. Put another way, this would be like telling a consumer that they have to pay the GST twice every time they go to the cash register.
As the City's discussion paper notes, there is limited experience with other municipalities that charge a land transfer tax. However, the City's discussion paper fails to point out that in some of these municipalities there is no provincial/state land transfer tax, meaning that the home buyer is not faced with a double whammy of land transfer taxes, as is being considered in Toronto.
The existing provincial land transfer tax is already a heavy burden for home buyers and a Toronto land transfer tax would exacerbate this. For example, the average home buyer in Toronto already has to pay a provincial land transfer tax of approximately $4,200 (on the averaged priced Toronto home in 2006 based on TREB MLS® statistics), in full at the time of closing. This means that a Toronto land transfer tax of 0.5%, as noted in the City's discussion paper, would mean close to an additional $1900 in land transfer taxes for an average Toronto home buyer, which represents an additional 45% of land transfer taxes. Even a Toronto land transfer tax of 0.1% would represent close to an additional $400 (a 10% increase) for the average Toronto home buyer – a significant amount of money at a time when most people can least afford it because of the numerous other expenses (appliances, furniture, renovations) that come with homeownership.
Land Transfer Tax = Home Buying Tax
Make no mistake, a second land transfer tax is nothing short of a home buying tax. Land transfer taxes are payable, in full, by a home buyer at the closing of a property transaction and can represent one of the biggest closing costs that home buyers must deal with. Generally, closing costs equal approximately 1.5% of the purchase price of a property. If the City implements a second land transfer tax of 0.5%, as considered by the City's discussion paper, this represents a 33% increase in closing costs for Toronto home buyers. Even a 0.1% Toronto land transfer tax would represent almost a 10% increase in land transfer taxes on the average home. At a time when the City's population growth is being vastly outpaced by surrounding areas, what kind of message does this type of home buying tax send?
Benefit for Cost?
Taxpayers have the right to know what benefits they receive from taxes. What added services, from the City, can home buyers expect for paying a second land transfer tax? If this tax is intended simply to generate general revenue, then the City is discriminating against home buyers and asking them to fund services that existing residents will benefit from. Property taxes, paid by all, are intended to pay for services that everyone benefits from.
"What's in a name?"
However, it is no secret that property taxes are overburdened. This is part of the City's rationale for considering new taxes. Unfortunately, there is little difference between a property tax and a land transfer tax. Both are taxes on homeownership; both are calculated based on a property's value; and both impact affordability. We support the City in trying to avoid property tax increases, but isn't a second land transfer tax just another way to raise taxes on property?
Don't Put the Cart Before the Horse
TREB has been a vocal supporter of efforts to convince the provincial and federal governments to provide municipalities with adequate, predictable, and sustainable funding from existing tax sources. Furthermore, TREB has joined municipalities in calling for the uploading of social costs, such as disability and drug benefits, that should not be funded by property taxes. We will continue to support these efforts and we strongly believe that these critical issues must be resolved before Toronto taxpayers are expected to pay any new taxes, let alone a duplicate of one that they are already paying at the provincial level.
Contradicts Other City Objectives and Goals
The City's Discussion Paper indicates that requiring home buyers in Toronto to pay a second land transfer tax would have a "neutral policy impact". Unfortunately, we believe that there is a distinct possibility for substantial impacts on various City policies, objectives, and goals.
Environmental Impact: More Traffic, More Smog
Under the new City of Toronto Act and the new Municipal Act, Toronto is the only Ontario municipality with the authority to levy a local land transfer tax on top of the existing provincial land transfer tax. This means that, if Toronto levies a second land transfer tax, the City would be creating a financial incentive for home buyers to choose to buy a property outside of Toronto's borders. Recent census data already demonstrates that Toronto is growing at a much slower rate than surrounding municipalities; adding additional costs in Toronto will only exacerbate this trend, meaning more urban sprawl, which means more commuting, more traffic and more smog.
Affordability and Intensification
The average price of a re-sale home in Toronto in 2006 was approximately $378,000. This makes Toronto one of the most expensive cities in the country to live in. As noted above, a second land transfer tax could add considerable costs for home buyers. Any increase will reduce Toronto's affordability, making it more difficult to attract new residents and achieve the intensification goals that the City has laid out in its Official Plan.
According to a study conducted by Clayton Research for the Canadian Real Estate Association, each re-sale housing transaction in Ontario generates approximately $27,000 in spin-off spending for things like furniture, appliances, renovations, etc. In recent years, this means that re-sale real estate transactions have contributed more than $2 billion per year to Toronto's economy. Any impact on Toronto's real estate market, from a second land transfer tax, will impact the overall economy.
Moving Forward: Adequate Consultation
I hope you find our views on this issue helpful. This is an unprecedented initiative that requires serious and lengthy public consultations, which we look forward to participating in. As such, we would appreciate an opportunity to meet with you to discuss this issue further.
For more information, visit www.TorontoRealEstateBoard.com .
Article printed from RISMedia: http://rismedia.com
URL to article: http://rismedia.com/2007-03-23/realtors-raise-concerns-over-toronto-home-buying-tax/
URLs in this post:
 www.TorontoRealEstateBoard.com: http://www.TorontoRealEstateBoard.com
Copyright © 2012 RISMedia. All rights reserved.