Condo owners brace for HST
Costs going up on everything in Ontario and BC
By LISA FATTORI, QMI Agency
Contrary to its Kumbaya name, the Harmonized Sales Tax (HST) is creating a lot of discord in the condominium market.
The House of Commons voted 253-37 Wednesday in favour of the tax for Ontario and BC. Just hours earlier, Ontario passed its own legislation. BC is expected to follow suit early in the new year.
That means come July 1, 2010, condo corporations are going to see a significant hike in operating costs - an expense that will have to be passed onto condo owners in the form of increased maintenance costs, over and above the customary annual inflationary increase.
"We estimate that the impact on condo owners will be an increase of 6.5% to 8%, and that's not even taking into consideration reserve fund increases," says Chris Antipas, president of the Association of Condo Managers of Ontario.
Reserve funds, too, will need to be topped up to meet future requirements - the increase in labour costs for large-scale repairs - and that translates into further levies for suite owners.
"Maintenance and repairs are labour-intensive services that will cost 13% HST rather than 5% GST," Antipas says. "Condo corporations will have to adjust their reserve fund budgets and take into account any increased costs for each component of their buildings."
The claim that the HST will lower the cost on some consumer goods is little comfort to industries outside of the manufacturing and distribution of widgets. Concierge and cleaning services, landscaping, mechanical repairs, utility bills and private garbage collection are currently exempt from the Provincial Sales Tax of 7% in BC and 8% in Ontario. The combined PST and GST under the new harmonized tax means that condo owners will be paying both taxes for these services, for a total of 12% in BC and 13% in Ontario.
In 1992, Quebec adopted a similar "value-added" tax called the Quebec Sales Tax, while Newfoundland and Labrador, Nova Scotia and New Brunswick came on board with an HST in 1997. While the sky may not have fallen, the benefits of the tax in the way of reduced costs by suppliers weren't evident the first year of implementation. Even if suppliers do pass on savings for materials, inflation rates have to be added to the equation.
Gordon Chong, a director with the Canadian Condominium Institute and president of the condo building where he lives in Toronto, proposes a solution that would require legislative changes to the Condominium Act.
As the founding chairman of the Social Housing Services Corporation (SHSC), he was instrumental in helping the Ontario government set up SHSC as a statutory corporation in 2002. Through the corporation, housing providers' reserve funds are managed by a professional management firm, PHSN, and are allocated according to the timing requirements for their usage. The pooled money is invested, some in funds that earn higher returns, and the management fee for the combined reserve fund is considerably lower than it would be if managed individually.
"Since the HST is going to have a negative impact on condo expenditures, the province could mitigate its impact by adopting and adapting the SHSC business model to condos province-wide," says Chong. "Condos are multi-residential buildings required by law to have and update reserve funds but are currently restricted to investing in only the most conservative vehicles. Condos could and should have the same latitude that social housing has. Because expenses will go up, condo boards should have the flexibility to maximize and optimize their investment returns according to their individual needs."
Ontario has the largest condo market in the country, with 7,000 condo corporations and 500,000 units. The social housing market is much smaller, with 1,400 social housing providers and 255,000 units, but with a reserve fund of $370,000 million. According to Chong, under the SHSC model, the higher return on investment would flat-line or lower condo owners' required contributions to the reserve fund.
"With such a large condo market, the purchasing power is huge," Chong says. "If costs are going up, then you have to increase your revenue."