Home buyers in Toronto could face a second land-transfer tax if the city goes through with the proposal it made a few weeks ago, a tax that critics say is not only unnecessary, but could hurt home buyers and the Toronto economy.
Dorothy Mason, the President of the Toronto Real Estate Board (TREB) wrote an open letter to Toronto Mayor David Miller outlining the potential harm of the proposed tax.
One of the major issues the letter raised was that homebuyers could use the money spent on the new tax for more useful consumer goods.
According to last year’s MLS statistics, the average price for a home in Toronto was about $380,000. On top of that, buyers were expected to cough-up an extra $4,200 due to the existing Ontario land-transfer tax.
The Director of Government Relations for the Toronto Real Estate Board, Von Palmer says that if this new home buyer’s tax is introduced at a 0.5% rate, buyers will have to pay an additional $1,900.
‘You have to pay this money up front’
That’s an extra $6,100 on the price of the home, plus the buyer still has to pay the lawyer and real estate agent fees.
“The reality is this, when you’re trying to find money for your appliances $1,900 is a lot of money,” says Palmer. “You have to pay this money up front.”
According to the discussion paper the new taxes could earn the city an extra $300-million annually. In an earlier interview, Miller said that although the new land taxes are not specifically meant to ease Toronto’s debt, they are useful meanwhile the city fights for more provincial funding.
But Palmer says that the new tax contradicts one of the city’s public policy objectives, which is to intensify and encourage growth in Toronto.
“If the city goes ahead (with the tax), it’s natural (for buyers) to look to the 905 (areas) because it’ll cost less,” Palmer says, and the result would be a major urban sprawl.
Toronto could lose revenue
According to Palmer, out of every real-estate transaction, about $25,000 goes into the city’s economy; that’s about $2 billion annually. That revenue would be lost if buyers go to another city.
Carol Wilding of the Toronto Board of Trade raised similar arguments saying that Toronto should focus more on an economic plan, rather than resorting to taxation.
In an earlier interview she slammed the city for failing to “control spending,” and claimed that taxes should be used only as a last resort for the city’s funding.
Will Dunning a Chief Economist to the Canadian Institute of Mortgage Brokers (CIMBL) agrees. He says the city would lose “plenty” of realty tax dollars as a result, but that the new tax would not dramatically impact the city’s economy.
“We have to bear in mind that the city’s housing has gone up by 40 per cent in the past four or five years and people are still buying in the city,” Dunning says. “So the result in another tax will have a small impact.”
Regardless, Palmer still feels that it’s the homebuyer who will end up with more debt. He argues that everyone will benefit from the tax even though the money only targets a “certain percentage” of the population. He stresses that it’s the buyer who ultimately pays the tax.