Ottawa making $2B a year in GST on new homes, construction group says

Steve Rennie, THE CANADIAN PRESS
OTTAWA - The federal government is raking in more tax money than it ever meant to on new home sales and needs to bring GST rebates in line with today's cost of housing, the Residential Construction Council of Ontario said Friday.

The council, which represents home builders, says Ottawa takes in about $2 billion a year in GST on new homes. It says the GST on the average-priced new home in Canada is approaching $20,000 - almost double what it was in 1991.

The high tax costs make it harder for people to buy new homes, the council said.

"This argument that we're making has been made by every building association across the country for years. We're just making the same argument again based on current stats," council chairman Phillip Rubinoff said in an interview.

Canada Mortgage and Housing Corporation spokeswoman Kristen Scheel said the average price of a new home in Canada, as of November 2007, was $424,395.

The council said new home buyers were entitled, when the GST was first implemented, to a rebate of 36 per cent of the GST on homes costing up to $350,000. That rebate declined for houses priced between $350,000 and $450,000.

Home prices higher than $450,000 were not eligible for a rebate.

But the council claims just four per cent of new homes were priced around $450,000 in 1991.

The council said new housing prices have increased sharply - particularly in the West, where the oil boom has driven up housing prices in Alberta, British Columbia and Saskatchewan - but the rebate remains the same.

Rubinoff suggested a rebate of 36 per cent of the GST be applied to homes costing up to $500,000. That rebate would decrease gradually for more expensive homes.

One of the Conservatives' central policy planks in the 2006 federal election was to reduce the GST incrementally to five per cent from seven per cent.

The Tories made the first reduction to six per cent last year and Finance Minister Jim Flaherty recently said the government plans to drop the GST to five per cent in January.

But the council says home buyers will still pay about $16,500 on average even when the GST reaches five per cent.

Meanwhile, Statistics Canada reported this week the rate of growth in new housing prices slowed again in October - the 14th straight month in which the pace of growth has either decelerated or held steady.

Contractors' selling prices went up 6.1 per cent between October 2006 and October 2007, compared with a 6.2 per cent year-over-year increase in September.

That increase is only half of the most recent high of 12.1 per cent in August 2006, the agency said.

"Most of the number, at the Canada level, is influenced by Alberta and Saskatchewan," said Statistics Canada analyst Neil Killips.

Saskatoon led the country in with 47.9 per cent year-over-year growth in October, followed by Regina (29.5 per cent) and Edmonton (24.3 per cent).

Windsor was the only city in Canada to record a year-over-year deflation, with new housing prices falling 2.6 per cent from October 2006.

Southern Ontario has been beset in recent years with layoffs and slowdowns in the manufacturing sector.

© The Canadian Press, 2007