Update on HST and Real Estate: How It Works

General Angela Calla 24 Dec

HST and Real Estate: How It Works

By Clark Wilson LLP’s Commercial Real Estate Group

While the BC government is getting out of the sales tax business, the province’s residential real estate developers will have more taxes to cope with than ever before.


On July 23, 2009, the BC government announced that it had reached an agreement with the federal government to combine the 7% BC Provincial Sales Tax with the 5% federal Goods and Services Tax to create a single Harmonized Sales Tax. The new tax will come into effect on July 1, 2010.

Following the announcement, several industry associations, including the Urban Development Institute, held discussions with relevant tax administrators within both the provincial and federal governments. Generally, industry was told to expect transitional provisions similar to those in Ontario, and industry suggested various departures from the Ontario rules.

On October 14, 2009, the BC government announced general transitional rules for the implementation of HST; however, the general rules contained little information regarding real estate. On November 19, 2009, the government announced transitional rules for new housing and proposed to increase the previously announced limit for the BC HST new housing rebate from $400,000 (the Ontario figure) to $525,000.

With the transitional provisions now in place, we can examine with some certainty the effect of the HST on the real estate industry.


  • The HST rate will be 12% (5% federal component + 7% provincial component).
  • The PST will be eliminated completely.
  • There will be a partial rebate of the provincial portion of the HST of up to $26,250 on new housing.
  • Input tax credits will be available for HST in the same manner as under the current GST.

New Housing

Currently under the GST, new housing is taxed while used housing is not. No housing sales are directly taxed under the PST, although the BC Ministry of Finance states that there is currently an average of 2% PST embedded in the cost of new homes from PST charges on construction materials. Under the HST, there would be no embedded tax but the full 12% HST would apply to new housing.

An HST partial rebate on new housing will be provided to purchasers in an amount equal to 5% of the purchase price up to a maximum rebate of $26,250. The Ministry’s rationale is that because purchasers currently pay 2% embedded PST, the rebate would eliminate any tax increase on new housing sold for a purchase price of up to $525,000. The embedded PST aside, homes under $525,000 will be subject to a tax 2% higher than under the current system. Homes over $525,000 will be taxed at a rate 7% higher than under the current system, less a flat $26,250 rebate (in addition to the currently available GST new housing rebate currently available for prices up to $450,000).

Price of Eligible New Home (not including GST or HST) GST Portion – New Housing Rebate1 British Columbia Portion – New Housing Rebate2 Total Rebates
$350,000 $6,300 $17,500 $23,800
$400,000 $3,150 $20,000 $23,150
$450,000 $0 $22,500 $22,500
$525,000 and above $0 $26,250 $26,250

1. New home buyers may be eligible for the federal GST new housing rebate, which generally equals 36% of the tax paid on the first $350,000 of the purchase price. The amount of the GST rebate is phased out on a straight-line basis for homes priced between $350,000 and less than $450,000.

2. British Columbia proposed rebate for new housing is equal to 5% of the purchase price up to a maximum rebate of $26,250 (71.34% of the provincial component of the HST).

In order to avoid the increased tax burden on homes priced over $525,000, vendors and purchasers may consider, wherever possible, completing the sales of new homes prior to July 1, 2010 when the new HST comes into effect. See transitional rules below for more details.

Buyers in the market for a home may be considering purchasing resale properties in order to avoid the increased tax burden on new homes. While the tax on resale properties is not directly affected by the new HST, the cost to the purchaser of these homes may still increase slightly because services associated with the purchase may be subject to increased tax. For example, home inspection charges would be subject to HST.

Transitional Rules for Pre-Sales

On July 1, 2010, many homes in BC will be partially constructed or the subject of incomplete transactions. Transitional rules for new housing were announced by the BC government on November 19, 2009 as follows:

  • 5% GST will apply to sales where title and possession of new housing is transferred prior to July 2010.
  • 12% HST will apply to sales where title and possession of new housing is transferred after June 2010 unless grandfathered. After June 2010, the HST would generally be payable on the earlier of the day on which ownership or possession of the property is transferred to the purchaser. The transitional provisions further provide that where the property is a residential unit in a residential condominium building and possession of the unit is transferred after June 2010 and before the condominium has been registered under the Strata Property Act, the HST would become payable when ownership of the unit is transferred, or 60 days following the date of the registration of the condominium, whichever is earlier. This latter provision was taken verbatim from the Ontario provisions and makes little sense in the context of BC closing procedures (where “registration of the condominium” is not a term of art). As it is likely to lead to confusion we would expect further amendment.
  • Sale agreements entered into on or before November 18, 2009 where title and possession of new housing is transferred after June 2010 will be grandfathered, meaning that the provincial portion of the HST will not apply at closing.
  • Where a sale is grandfathered and the building is wholly or partially completed after June 2010, the builder will be liable to pay a transitional tax intended to ensure the building has a tax content equal to what it would have had if constructed wholly prior to July 2010 (i.e. PST paid on all materials) and may also be eligible for a PST transitional new housing rebate. In the case of residential condominiums, the transitional tax adjustment would be calculated at 2% of the value of consideration for the condominium unit or building as established for GST purposes. In cases where the value of consideration for the sale of the grandparented home is less what the fair market value of the home would have been if the home had been substantially completed on July 1, 2010, the consideration for purposes of calculating the transitional tax adjustment will be deemed to be equal to the fair market value of the home as if the construction was substantially completed on July 1, 2010.
  • BC has adopted an approach to dealing with condominiums whereby the builder must pay 2% of the selling price of the unit (the government’s estimate of the PST content) and then claim a PST transitional new housing credit for the estimated PST paid on materials prior to July 2010 to provide relief in respect of the PST embedded in the price of the home. For newly constructed residential condominiums, the PST transitional new housing rebate would be available to the builder rather than the purchaser. Eligible applicants would be permitted to calculate the estimated embedded PST by choosing one of the following methods: (1) estimated PST content calculated at a prescribed amount of $60.00 per square metre of floor space or (2) estimated PST content calculated based on selling price or fair market value of the home, calculated at 2% of the total value of consideration or fair market value established for GST purposes.
  • Where a sale is subject to HST and construction commenced prior to July 2010, the builder will be entitled to a formula based PST transitional credit for the estimated PST paid on materials prior to July 2010.
  • Detailed information on the British Columbia transitional rules for new housing is available here.

What To Do Now: Important Provisions for Strata Presale Agreements

For purchase and sale agreements entered into after November 18, 2009 the developer is required to disclose in its purchase and sale agreement whether the provincial portion of the HST applies to the sale or whether the developer pays, and, if so, whether the stated price in the agreement includes the applicable provincial portion of HST. This requirement must be stated in the purchase and sale agreement and not just in the disclosure statement and, to be safe, should be stated expressly and not, for example “if the HST applies, then…”. If the developer does not meet these requirements, the stated price in the purchase and sale agreement would be deemed to include the provincial portion of the HST and the purchaser would not be required to pay the provincial portion of the HST in addition to the stated price in the purchase and sale agreement.

For developers wishing to credit purchasers with a rebate, as they may have traditionally done with the GST new housing rebate, the process is virtually identical, but with different percentages and limits. The GST new housing rebate will continue to be available while the new HST housing rebate will be available in addition.

It is important to note that the HST new housing rebate only applies, and is only assignable to the developer, where purchaser is purchasing it as the purchaser’s principal residence.

There is a new rental housing rebate available where the first use of the housing would be for occupancy or use by an individual under a rental arrangement or for occupancy by the developer as a primary place of residence for a period of at least one year. However, this new rental housing rebate is not assignable to the developer. Landlords would be able to apply for the rebate by filing a rebate application with the Canada Revenue Agency.

Rental Apartment Buildings

Residential landlords will face increased costs under the HST, since some goods and (especially) services not currently subject to the PST and necessary in the operation of apartment buildings will be taxed under the HST. As is currently the case with GST, landlords will not be able to claim input tax credits for HST paid and will not collect HST from tenants. Expenses such as maintenance, electricity and other services required by landlords will be taxed at 12% starting July 1, 2010.

Building Lots

Builders of new homes will be entitled to claim input tax credits for most HST paid on their inputs, such as raw land, just as they currently do with the GST. However, new homes in BC that are currently subject to the GST will become subject to HST as described above under the New Housing heading.

Commercial Sales and Leasing

Commercial sales and leases will not be materially impacted by the new system. The 12% HST will apply on commercial sales and leases just as the 5% GST does under the current system and input tax credits will be available to tenants and purchasers for the full amount paid.

Real Estate Commissions

Commissions will be subject to HST in the same manner as they currently attract GST. Commercial vendors will be able to claim input tax credits on HST paid to agents, while individuals selling personal use property will not.

New tools for the goverment to cool housing and the real numbers on how it could affect a borrower

General Angela Calla 22 Dec

The housing market that led Canada out of recession is now so hot that Ottawa is talking about doing something to cool it off, a move economists say carries risks for the economy.

Fuelled by record low interest rates, residential real estate prices have gained 20 per cent this year. And Finance Minister Jim Flaherty is now warning he will step in if prices get too high by tightening the rules for borrowers, by increasing the minimum down payment and shortening the maximum length of mortgages.

Such a move would have to be done cautiously, economists say, because the real estate market touches all parts of the economy, and anything that caps its growth could also temper the recovery.

Policy makers are concerned homeowners will take on more debt than they’ll be able to afford when interest rates rise again, possibly leading to a painful correction later.

The Bank of Canada has vowed to keep lending rates low into the middle of next year, limiting its options for taking the pressure off a hot market.

But since the federal government dictates rules around down payments and amortization periods, it can effectively dampen the housing market without increasing borrowing costs for businesses.

Mr. Flaherty said in an interview with CTV the government would consider raising the minimum down payment from 5 per cent “to a higher figure” and reducing the amortization period of 35 years to “something less.”

But the minister stressed that the government has not yet made that decision.

“If there is, in the future, evidence of a residential real estate bubble, the tools we have are the tools we’ve used before, relating to insured mortgages, lending standards, amortization periods and down payments, which is what we acted on in the summer of 2008,” Mr. Flaherty said in an interview with The Globe and Mail. In the summer, the government said it would no longer insure zero-down-payment mortgages or mortgages with an amortization period of more than 35 years.

Tougher requirements could price out first-time buyers such as 28-year old Michael Maynard, who are vital to a healthy market as they buy entry-level homes and allow others to trade up to larger and more expensive properties.

The Oshawa, Ont., law clerk has been looking for a house with his wife Angela for most of this year. They intend to make a 5-per-cent down payment, which they managed to save while Angela was on a maternity leave.

“If the requirement went up, I’d be out of the market right now,” he said. “There’s no way. We’d cool our heels. We’d come back eventually, but there’s no way we’d be able to stay in the market. And we want to take advantage of low interest rates, so that would be a shame.”

Buyers like the Maynards, who rely on low down payments and extended repayment periods to afford their homes, are becoming more common. In a November report, the Canadian Association of Accredited Mortgage Professionals found 18 per cent of mortgages were amortized over more than 25 years – a gain of 100 per cent in two years.

Sonia Baxendale, the head of Canadian Imperial Bank of Commerce’s Canadian lending operations, said Mr. Flaherty’s interest in this issue is both “pro-active and prudent.”

“This is not about there being an issue today, it’s about thinking through a potential issue down the road,” she said. “This is consistent with the long-term view we are taking on behalf of our clients so we support the minister in reviewing this now to ensure consumers are not taking on more debt than they can handle in a more normalized rate environment.”

This is the rare instance where government has an obvious tool it can use to deal with a potential bubble in a specific market, Toronto-Dominion Bank chief economist Don Drummond said.

“When you have a targeted regulatory instrument, you use that instead of the dull instrument of raising interest rates,” he said.

“Housing is the only market where you do have a tool with almost surgical precision.”

Any change to mortgage regulations is potentially dangerous, warned CIBC World Markets economist Benjamin Tal, because the government could “overshoot” its goal. While Mr. Tal agrees the market is showing signs of overheating, he said prices should “stagnate” in the coming months as pent-up demand is satisfied and new housing starts alleviate a shortage of listings for older homes.

“My message to the government is to be careful not to overshoot,” he said. “You do not kill a fly with a hammer. Housing is a very important part of the economic recovery, which is still very fragile. You do not want to ruin that market.”


One mortgage, three scenarios

The mortgage: Five-year fixed rate mortgage at 4.19 per cent, monthly payments, for $300,000.

1. 35 year am: Monthly payment is $1,356.16

2. 30 year am: $1,458.99

3. 25 year am: $1,609.12

Flaherty urges Canadians to get finances in order before rates go up

General Angela Calla 22 Dec

Ottawa consders tighter mortgage rules

Flaherty and Carney getting nervous

Last Updated: Monday, December 21, 2009 | 10:17 PM ET Comments360Recommend111

Ottawa is considering new measures to tighten mortgage standards and prevent would-be homebuyers from taking on more debt than they can afford.

Finance Minister Jim Flaherty said in an interview with CTV he’s worried about people piling up debt while interest rates are low and then getting into trouble when interest rates rise, as they inevitably must.

Finance Minister Jim Flaherty says he worries about Canadians taking on too much debt.Finance Minister Jim Flaherty says he worries about Canadians taking on too much debt. (CBC)

As a result, the Conservative government is considering increasing the minimum down payment from five per cent “to a higher figure,” he said, and Ottawa may also reduce the amortization period from a maximum of 35 years “to something less.”

Twenty-five-year mortgages used to be the norm, until lenders started making 30-, 35- and 40-year mortgages available to stimulate demand. In mid-2008, the Department of Finance moved to trim the maximum paydown period to 35 years and to require a minimum five per cent down payment for new federally insured mortgages.

Even so, 18 per cent of Canadian mortgages are for terms longer than 25 years, and 10 per cent are amortized over 35 or 40 years, a recent Scotiabank report estimated.

The average price of a resale home in Canada hit $337,231 in November, the Canadian Real Estate Association said last week. That’s 19 per cent higher than the depressed levels of a year earlier.

Flaherty’s comments echo Bank of Canada governor Mark Carney, who last week urged consumers to get their financial houses in order to prepare for when the central bank inevitably raises its key policy rate from its current emergency record low of 0.25 per cent.

Proceed with caution: CIBC

Word that Ottawa might step further into the red-hot real estate market had housing watchers buzzing Monday.

“You could basically shut down 25 per cent of the market,” CIBC economist Benjamin Tal told CBC’s The Lang and O’Leary Exchange. “It’s going to be significant because we’re talking about a lot of money that took advantage of those rates.”

“What the Bank of Canada and Finance Department are saying is that people are abusing these rates, but they need to be careful not to risk this fragile recovery.”

Though he admits more lending caution would be prudent, he advocates Ottawa be wary of anything as drastic as a hard cap of 30-year amortizations, or minimum 10 per cent down payments, for example.

“If you want to do it, do it in a gradual way that you do not kill housing [because] housing is the only thing ticking in this market,” he said. “The timing is tricky.”

Canada Housing Resales Climbed to Record in November

General Angela Calla 16 Dec

Canada Housing Resales Climbed to Record in November

By Alexandre Deslongchamps Bloomereng

Dec. 15 (Bloomberg) — Canadian home resales rose to a record 46,450 units in November, as the housing market helped to pull the economy out of recession, a realtor group said.

Seasonally adjusted sales in November climbed 67 percent from a year earlier, the Canadian Real Estate Association said in a statement.

“The Canadian housing market remains on fire as the combination of low mortgage rates and still favorable buying conditions continues to spur buying activity,” Millan Mulraine, an economist with TD Securities in Toronto, said in a note to clients.

The Bank of Canada has predicted growth in housing investment will stay “brisk until early 2010,” and then slow as pent-up demand is satisfied and affordability declines. The bank lowered its benchmark lending rate to a record 0.25 percent in April to spur domestic demand and pledged to leave it there through June unless the inflation outlook changes.

Canada’s five-year mortgage rate was 5.84 percent for most of November and fell to 5.59 percent by the end of the month, near the 58-year low of 5.25 percent set in April, according to Bank of Canada data.

The rebound has prompted some analysts, including Gluskin Sheff & Associates Inc.’s David A. Rosenberg, to question whether a bubble is forming in the housing market.

‘Next Closest Thing’

“Housing values are anywhere between 15 percent and 35 percent above levels we would label as being consistent with the fundamentals,” Rosenberg said in a report before today’s report. “If being 15 percent to 35 percent overvalued isn’t a bubble, then it’s the next closest thing.”

The average nationwide price rose 19 percent from last year to C$337,231 ($317,700), the association said in the statement. Seasonally adjusted listings fell 4.8 percent to 79,953 in November from a year ago.

Without adjusting for seasonality, home sales rose to 36,383 units in November, up 73 percent from a year earlier, CREA said.

“The rebound in resale housing activity led the overall Canadian economy out of recession,” CREA President Dale Ripplinger said in the statement.

British Columbia poised to recover from sharp downturn in 2009: RBC Economics

General Angela Calla 14 Dec

Positive economic growth likely in 2010 and 2011, says RBC Economics

The Canadian Press  – After a challenging year, the economy is set for a recovery in 2010, according to a new forecast by RBC Economics.

It says although the economy contracted at an average of 2.5 per cent this year, the stage is set for positive growth in 2010. RBC predicts real gross domestic product will rise by 2.6 per cent next and will continue to expand in 2011, at a 3.9 per cent clip. The report suggests the peak of stimulus spending will occur in 2010, with improving credit conditions fuelling growth next year and in 2011.

In addition, consumer spending is projected to increase by 2.3 per cent next year before accelerating to 2.7 per cent in 2011.

However, the bank says the jobless rate is expected to remain high at about 8.7 per cent in 2010 before falling to 7.8 per cent in 2011.

“With the financial crisis behind us and the U.S. economy on the mend, Canada’s economic growth is expected to rise steadily throughout the next year,” said Craig Wright, RBC senior vice-president and chief economist.

“While challenges remain, a peak in stimulus and infrastructure spending across the federal, provincial and municipal governments, along with low interest rates, should result in a sustained recovery.”

Flaherty notes stimulus money flowing as recovery kicks in

By Nelson Wyatt

MONTREAL — Federal stimulus projects are starting to snowball just as the economy is recovering from the global financial meltdown, Finance Minister Jim Flaherty said Friday.

Flaherty says cash will flow faster in 2010 for federally funded construction projects, now that numerous engineering studies and environmental assessments are being completed.

“They are snowballing, if I can put it that way,” he said in Quebec City.

“They are gathering momentum as we go forward, as engineering studies are done, as environmental assessments are done. So there’ll be a lot of cash flow next year into the Canadian economy.”

Earlier this year, in the depths of the recession, Ottawa earmarked billions for infrastructure projects.

The opposition spent months warning that the money wasn’t going out quickly enough, while the government made procedural changes to speed up the delivery process.

The Liberals say Flaherty’s comments now prove the stimulus process encountered hiccups.

“He’s admitting that we were right all along,” Liberal critic John McCallum said in an interview. “Very little of the money has gotten out.”

He drew parallels with the government’s treatment of allegations of prisoner abuse in Afghanistan.

“This is a dishonest government,” McCallum said. “They told Canadians lies about (Afghanistan) detainees and about the infrastructure money.

“And then when irrefutable facts came out to demonstrate these were lies, they spin the story in a different way. In both cases, the facts now show that they were not telling the truth on infrastructure just as they were not telling the truth on detainees.”

He said it would have been possible to get the money out faster if the government had followed a Liberal plan to transfer gas taxes directly to municipalities, who would have been able to move ahead with already approved projects.

The finance minister, meanwhile, said there are encouraging signs that the recession is petering out.

“We have seen improvements in business confidence, certainly. We are seeing an increase — some increases — in private-sector investment, although we are not comfortable yet that we’re at a place where we can stop the stimulus measures,” Flaherty told a news conference.

“The job situation has also stabilized in the last several months, which is always encouraging.”

Dale Orr, a Toronto-based economic consultant, said Flaherty had “put a bit of flesh” on earlier statements which left the impression projects were going forward and there was immediate economic growth.

“The starting point for a lot of these programs is exactly what he’s now mentioning,” Orr said.

Douglas Porter, deputy chief economist with BMO Capital Markets, said Flaherty seemed to be sticking to his message “that there isn’t going to be a whole lot of new measures next year.

“In fact, next year’s budget may be extremely thin.”

Porter said one of the biggest criticisms of fiscal policy is that by the time the problem is identified and the money starts to be spent, the economy has already started to recover.

“This may well be a case where the maximum effect of the fiscal stimulus actually hits after the economy has started to emerge from recession.”


Transmitted by CNW Group on : December 14, 2009 05:00

British Columbia poised to recover from sharp downturn in 2009: RBC Economics

Strong demand for natural resources and staging the Winter Olympics should boost B.C. economy in 2010

TORONTO, Dec. 14 /CNW/ – As British Columbia gets ready to host the 2010 Winter Olympic and Paralympic Games, the province’s economy is preparing for a burst of economic activity, according to a new RBC Economics report.

“The Games should give a big boost to tourism, retail trade and a variety of other services that will help move B.C.’s economy into recovery mode in 2010,” said Craig Wright, senior vice-president and chief economist, RBC. “This economic tonic could not come soon enough for B.C., which is ending 2009 with its worst performance since 1982.”

Signs of a recovery have been emerging in recent months, with retail sales and housing starts trending higher since the spring. A stunning rally in existing home sales, boosted by low mortgage rates, helped the B.C. resale market fully recover in October. Employment also picked up in the fall, although the unemployment rate remained elevated.

The RBC Economics Provincial Outlook forecasts that B.C.’s key forest products sector should finally begin to move out of its deep slump in 2010, as U.S. demand for building products rises. Stronger global demand for metals and coal, as well as further development of natural gas fields in the province, should contribute to increased exports. The RBC report projects that the B.C. economy will grow by a solid 3.2 per cent in 2010, second only to Saskatchewan in terms of growth rates among the provinces next year, before moving higher to 3.4 per cent in 2011.

The main theme of the RBC Economics Provincial Outlook is that a mild economic recovery is expected to be widespread among provinces in 2010, after a significant contraction spread across the country in 2009 (with only Manitoba and Nova Scotia barely avoiding a decline in activity). The full force of fiscal and monetary stimulus should positively contribute to growth in 2010. The price tag for that stimulus however, will be huge budget deficits. While such deficits might cause some discomfort, the alternative was even less attractive given the severity of the economic downturn. Returning to balance over the medium-term will be a challenge involving difficult choices. Provincial economies are expected to be in solid growth territory in 2011, with most western provinces – led by Saskatchewan – benefiting from strengthening commodity prices and hitting higher growth rates than the 3.9 per cent national average. The exception will be B.C., where the boost from the Olympics will not be repeated.

The RBC Economics Provincial Outlook assesses the provinces according to economic growth, employment growth, unemployment rates, retail sales and housing starts.

According to the report, available online as of 8 a.m. EST today at www.rbc.com/economics/market/pdf/provfcst.pdf, provincial forecast details are as follows:



                        Real                Housing             Retail

                         GDP                 starts              sales

                    Y/Y % Change           Thousands          Y/Y % Change

                  09     10     11     09     10     11     09     10     11

                  —     —     —     —     —     —     —     —     —

    N.& L.      -4.5    2.4    1.5    3.0    3.0    3.1    2.0    4.2    5.4

    P.E.I.      -0.1    2.2    3.4    0.7    0.8    0.8   -0.7    3.7    4.4

    N.S.         0.0    2.8    3.8    3.7    4.1    4.1   -0.3    4.4    4.9

    N.B.        -0.3    2.9    3.7    3.6    3.7    3.5   -0.4    3.7    4.1

    QUE.        -1.6    2.2    3.7   41.5   42.0   44.0   -0.9    4.3    5.1

    ONT.        -3.2    2.4    4.0   50.5   65.0   68.0   -2.7    3.8    5.6

    MAN.         0.2    3.0    4.0    4.2    5.4    5.5   -1.3    5.1    5.8

    SASK.       -1.6    3.9    4.6    3.4    4.1    4.4   -2.3    5.5    6.1

    ALTA.       -3.4    2.4    4.4   19.2   28.5   30.5   -8.5    4.9    7.0

    B.C.        -2.6    3.2    3.4   15.6   24.5   27.5   -5.8    5.7    4.6

    CANADA      -2.5    2.6    3.9  145.4    181    191   -3.3    4.4    5.5




                     Employment              rate                 CPI

                    Y/Y % Change               %              Y/Y % Change

                  09     10     11     09     10     11     09     10     11

                  —     —     —     —     —     —     —     —     —

    N.& L.      -2.5    0.6    1.8   15.5   15.7   14.9    0.4    1.8    2.3

    P.E.I.      -1.3    2.1    1.2   12.2   12.0   11.7    0.0    2.2    2.4

    N.S.         0.0    1.3    2.0    9.2    9.4    8.8    0.0    2.1    2.4

    N.B.         0.1    1.3    1.5    8.9    8.9    8.5    0.3    2.0    2.3

    QUE.        -1.0    1.1    2.2    8.5    8.8    8.1    0.6    1.6    2.2

    ONT.        -2.4    1.1    2.5    9.1    9.7    8.5    0.3    1.3    2.1

    MAN.         0.2    1.4    2.2    5.2    5.5    4.9    0.7    1.8    2.3

    SASK.        1.5    1.2    2.7    4.8    5.1    4.5    1.3    2.3    2.9

    ALTA.       -1.2    1.2    3.1    6.6    6.9    5.9   -0.2    1.3    2.0

    B.C.        -2.4    2.1    1.7    7.6    7.5    6.9    0.1    1.2    2.0

    CANADA      -1.5    1.3    2.3    8.3    8.7    7.8    0.3    1.5    2.2


Long term rates to rise?

General Angela Calla 14 Dec

Bond yields and mortgage rates could head higher before the Bank of Canada’s pledge to hold interest rates steady expires in July, the chief economist at Bank of Nova Scotia said this week.

“There’s a very good chance long-term rates will head up before then,” Warren Jestin said in Toronto at a briefing sponsored by the Investment Funds Institute of Canada.

He warned new homeowners with variable-rate mortgages not to be influenced by the central bank’s neutral statements on rates on Tuesday. The bank has pledged to hold rates at a historic low of 0.25% until the end of the second quarter of next year, inflation conditions permitting.

Read the “fine print” and he believes it’s likely three-year and five-year mortgage rates will be higher before July 2010.

Mr. Jestin does not foresee a double-dip recession. “Those who expect renewed recession next spring will be proved wrong.” For North America, “2010 is a year we fill in the hole we dug for ourselves in one of the most vicious recessions in our lives.” But the global economy will grow at a “slower rate than we’d consider normal a few years ago. We believe expansion won’t be that strong in 2011 so we don’t see rates continuing up in 2011.”

Christopher Probyn, managing director and chief economist for State Street Global Advisors, expects the U.S. Federal Reserve will raise interest rates by 0.75% to 1.5% in the second half of 2010. However, he said inflation may run surprisingly low so the Fed could “be on hold much longer than people anticipate.”

The 2008-2009 period was by far the worst economy since the International Monetary Fund started collecting data in 1970. “For the first time, there was a contraction in the global economy.” Growth in world gross domestic product fell from over 5% in 2007 to 3% in 2008 but went to -2.5% in 2009.

The low was the first quarter of 2009, when the economy contracted at a rate of 6% annualized. But it was flat in the second quarter and returned to positive growth in the third, “so throughout 2009 there has been progressive improvement.”

Mr. Probyn foresees a sustained but “rather gradual” recovery, with GDP expanding 2.5% in 2010. Last week’s favorable employment report suggests the next stage in recovery may already have arrived. “Maybe we’re very close to achieving stability in the labor market,” Mr. Probyn said.

Like Mr. Jestin, he doesn’t foresee a double-dip recession in 2010. He said the recovery is more likely to be U-shaped, with some bouncing along the bottom, than the instant rebound of a Vshaped comeback.


Are you thinking about buying a brand new home?

General Angela Calla 8 Dec

If so, pay attention to the new HST being implemented in the Summer of 2010.  This new tax has the potential to dramatically increase your overall purchase price.

I’ve got detailed information available, which I’d be happy to send to you upon request; however for the purposes of this blog, I am just going to touch on the highlights.

HST will be a 12 % Tax on the purchase of most goods and services in BC.  This will be applicable to NEW Real Estate, not resale.

While this tax is a substantial increase from the current 5% GST that is applicable to new home construction, the government has recently announced rebates aimed at home buyers.

The following is an excerpt from a government news release:

“Enhanced New Housing Rebate
The new housing rebate would be enhanced so that new homes purchased as a primary residence would receive a rebate of 71.43 per cent of the provincial component of the HST, paid up to a maximum of $26,250.  
As a result of the decision to enhance this proposed rebate, purchasers of homes priced up to $525,000 would pay no more tax, on average, than under the current PST. Homes above $525,000 would receive a flat rebate of $26,250. This enhanced rebate represents a 30 per cent increase in the threshold and maximum rebate available.”

The announcement was long, and complicated, but for most buyers, the bottom line is:

At a sale price of under $525 000, after all rebates you should be paying no more tax than you would presently under the GST/PST System.

Over $525 000, you will be paying significantly more for your new home.  For a $1M purchase, the additional tax will add about $33 250 to the cost of your new home.  Even after some savings on construction that may be passed along from developers as a result of HST, you will still be paying significantly more for your new home.

Buyers of resale homes should not be significantly impacted by HST, other than additional tax on closing services such as lawyer fees and home inspections.

Economic recovery is ‘solidly entrenched’: BoC

General Angela Calla 8 Dec

Economic recovery is ‘solidly entrenched’: BoC

Paul Vieira, Financial Post 

OTTAWA — After months of uncertainty, the economic recovery now appears to be “solidly entrenched,” the Bank of Canada said Tuesday, indicating its forecast for growth should unfold as envisaged.

Still, in its latest interest rate announcement, the central bank reiterated, as expected, its conditional commitment to keep its key policy rate at a record low 0.25% until June 2010 as inflation is still not expected to hit its preferred 2% target until the second half of 2011.

Recent data – from retail sales to a stunningly strong jobs report for November — have painted a mostly cheer picture of the Canadian economy, analysts say, even though third-quarter GDP growth of 0.4% annualized came in well below the central bank’s 2% expectation.

Since the central bank’s latest economic forecast in October, “global economic developments have been slightly more positive and the global outlook has improved modestly,” the bank’s governing council said in its statement, adding though that “significant fragilities” remain.

The central bank said the composition of economic growth is unfolding as expected, highlighted by a shift toward stronger domestic demand and less reliance on exports.

“The main drivers and the profile of the projected recovery in Canada remain consistent with the bank’s [outlook],” it added. “The bank continues to expect economic growth to become more solidly entrenched over the projection period and inflation to return to the 2% target in the second half of 2011.”

According to the central bank’s outlook, Canada is expected to grow 3.3% this quarter, followed by expansion of 3% next year and 3.3% in 2011. Predictions for strong growth gained steam late last week when data indicated the Canadian economy added 79,000 jobs in November.

Further, the central bank on Tuesday played down the impact of the stronger dollar, even though it acknowledged it remained a key risk to its forecast, and “could act as a significant further drag” on growth and inflation. The stronger loonie, which has advanced as much as 25% this year against its U.S. counterpart, led to a surge in imports in the third quarter – resulting in net exports acting as a drag on the economy of roughly 5.3 percentage points.

Since the last rate announcement, however, the dollar has on average traded a couple of cents below the central bank’s working assumption of a US96¢ loonie.

Most analysts were looking for any change in nuance in the bank’s statement – in particular a hint or two that it might move before its conditional pledge to keep rates at a record low until June 2010 given the surge in domestic consumption as households take advantage of record low borrowing costs.

Instead, the central bank reiterated that its target rate of 0.25% “can be expected” to remain intact until the end of the second quarter of next year. The pledge is conditional on inflation hitting the 2% target in the third quarter of 2011, as the bank expects.

The last time the bank raised its key policy rate, to 4.5%, was in July of 2007 – and shortly afterward the first signs of the credit crisis emerged.

Some economists, such as Ryan Brecht of Action Economics, expect the central bank to begin hiking its policy rate, and aggressively, starting in the second half of next year.

In a note released Tuesday morning, Mr. Brecht, the firm’s senior North American economist, said he envisaged the Bank of Canada raising its target rate by 175 basis points before December of 2010, for a policy rate of 2%, or “more normal levels.” Still, that would be below the 3% level in September of 2008, when Lehman Bros. collapsed, or the 4.5% peak hit more than two years ago.

Financial Post


The Bank of Canada has reiterated its conditional commitment to keep that rate until mid 2010

General Angela Calla 8 Dec

The Bank of Canada has reiterated its conditional commitment to keep that rate until mid 2010. 

Please see below for the full report.

One of our clients contacted us to help them with an a mortgage review this week and we saved them $1,300 dollars a month $ 15,600 a year and over the 5 years $78,000.00 in interest alone. This will help their family have a clear title home 7 years sooner and also improve their retirement cash flow by allowing them with all the money they are saving monthly, to buy a rental condo that will earn them an additional $450 a month in income. One simple call to our office changed this family’s life.

What would you do with that additional savings? Call 604-802-3983 or introduce us over an email at acalla@dominionlending.ca to someone that you truly care about to see how we can help you today!

 Bank of Canada maintains overnight rate target at 1/4 per cent and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010

OTTAWA – The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1/4 per cent. The Bank Rate is unchanged at 1/2 per cent and the deposit rate is 1/4 per cent.

While significant fragilities remain, global economic developments have been slightly more positive and the global outlook has improved modestly relative to the Bank’s projection in its October Monetary Policy Report (MPR).

In Canada, as expected, the composition of aggregate demand is shifting towards final domestic demand and away from net exports. In the third quarter, the balance of these shifts resulted in weaker-than-projected GDP growth. Core inflation in recent months has been slightly higher than the Bank had projected, although total CPI inflation remains close to projections.

The main drivers and the profile of the projected recovery in Canada remain consistent with the Bank’s views in the October MPR. The Bank continues to expect economic growth to become more solidly entrenched over the projection period and inflation to return to the 2 per cent target in the second half of 2011.

Conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010 in order to achieve the inflation target. In its conduct of monetary policy at low interest rates, the Bank retains considerable flexibility, consistent with the framework outlined in the April MPR.

The risks to the outlook for inflation continue to be those outlined in the October MPR. On the upside, the main risks are stronger-than-projected global and domestic demand. On the downside, the main risks are a more protracted global recovery and persistent strength in the Canadian dollar that could act as a significant further drag on growth and put additional downward pressure on inflation. The Bank views all of these risks through the prism of achieving the 2 per cent inflation target.

While the underlying macroeconomic risks to the projection are roughly balanced, the Bank judges that, as a consequence of operating at the effective lower bound, the overall risks to its inflation projection are tilted slightly to the downside.

Information note:

The next scheduled date for announcing the overnight rate target is 19 January 2010. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report on 21 January 2010.

Enjoy your week