The Landlord or BC Property Owner’s Perspective on BC HST
Posted by admin on September 11, 2011
THE LANDLORD OR BC PROPERTY OWNERS’ PERSPECTIVE on the indirect implication of the BC HST on rent and BC HST impact on rental housing rates
One thing to remember is that even though there is no direct HST tax on rents in British Columbia, landlords and property owners will be taxed the 12% HST on other goods and services that are required to run a rental home, condo or townhome. Remember that the landlord only sees the bottom line or the monthly cashflow (either negative or positive) that he or she gets from a BC rental property. With the implementation of the BC Harmonized Sales Tax in July 1st, 2010, the BC and federal government will apply the 12% HST tax to all goods and services associated with operations, maintenance and renovations to any property, including new rental housing. These increased costs and expenses to the property owner or landlord will result in a tigher cashflow and bottom line. And you know what that means. With less income coming in, guess who will end up paying for the increase in expenses to a BC rental home? Yes, you guessed it …. Most likely, the landlord or BC property owner will add any extra expense to the rental rate. This is why we call it an indirect implication of the BC HST on rents. The BC HST impact on rental housing will be profound. Just think about this: if all the goods and professional services cost 12% more than they do currently, BC landlords and property owners will probably increase the rental rates on rental homes, condos and townhomes by the same 12% (twelve per cent). What this means is that $1,000/month may be jacked up by 12%, taking it to $1,120/month rounded up to $1,150/month for the exact same rental housing unit in BC. Here are 3 main reasons why the indirect effect of the BC HST on rents will likely increase Vancouver rental rates and decrease affordability for renters.
Reasons #1 – 12% HST Tax Burden on New Homes
The most obvious reason why Vancouver rents will increase due to the new B.C. HST is because the 12% tax will be applied to any new homes purchased, including rental condos, single family homes and rental townhomes. Although this is an upfront cost to landlords and property owners/investors looking to rent their suites and units, when it comes to a Vancouver real estate investment, the investor only looks at the cashflow or bottom line. If the numbers do not make sense, the investor does not purchase the property. If the numbers do make sense and the property investor can get positive monthly cashflow from the rental unit, then they make the numbers work as best as they can. However, the BC HST on rents is indirectly affected by the original purchase price of the rental housing unit. The increased original purchased cost through the BC HST tax burden will ultimately be serviced by an increase in Vancouver rents and rental rates.
Reason #2 – Cost of Operating a BC or Vancouver Rental Suite Goes Up
Essentially, through the adoptation of the 12% BC HST, landlords and real estate investors who rent out their homes, condos and townhouses will see an increase in costs for operating their BC rental housing. If the rental Vancouver home belongs to a strata or community, like most rental condos, townhouses and even some single family homes in master planned communities throughout British Columbia, chances are, the landlord or property owner is paying strata fees or homeowner association fees. With the implementation of the British Columbia Harmonized Sales Tax, there will be BC HST on strata fees and B.C. HST on homeowner association fees as well, increasing the ongoing monthly costs by 12%. In addition, any Vancouver rental operating costs associated with accounting or legal fees will also be taxable under the new tax rules. What this means is that there is BC HST on accounting and HST on legal fees and notary republic costs. This ultimately has a direct impact on the BC HST on rents and Vancouver rental rates, pushing up landlord and property ownership costs that will be passed onto the renter. For BC landlords that pay for utilities, your costs have gone up again.
Reason #3 – Cost of Maintenance and Renovations Will Skyrocket
Not only will BC rental housing operations cost more, but the cost of maintenance and renovations for landlords in the province will also skyrocket. All trades services and products will be subject to the new Harmonized Sales Tax. What this means is that there is BC HST on renovations, including green initiatives, energy efficient products/appliances, rebuilding roofs, foundations, decks, add-ons and other retrofit projects. Not only that, but there is also BC HST on professional services that may include renovation staff, property appraisals and property inspectors. Because of this added HST tax burden, we see many home owners and landlords staying away from renovating their rental housing in Vancouver because it simply costs too much. Therefore, not only will we see the effect of BC HST on rents go up, but the state of the Vancouver rental homes will likely go down.
Kararent Team
