Get Real on Real Estate Tax!

When Finance Minister Eugene Kostyra brought in the new land transfer tax in 1987 the provincial budget stated the tax was fair because it "gives a break to those purchasing average and low-cost housing". In other words, if you buy a home above the average price, you could then afford to pay an additional home buyer tax to the government. B.C.'s high land transfer tax is actually called a wealth tax.

Most home buyers would challenge the fairness of being singled out for choosing to put their money into more expensive shelter as opposed to someone else who invests in other less tangible assets. Due to the much higher cost of housing today, the reality is that no one gets a break and there is not a first-time homebuyer exemption like they have in B.C. and Ontario (Alberta and Saskatchewan do not have a land transfer tax).

As a result of the average house price tripling in 24 years (most are in excess of $200,000 and many are first-time buyers), the Manitoba land transfer tax, the highest rate in the country, really starts to add up. This has become an inhibitor for many buyers to come up with enough of a down payment and closing cost dollars to purchase a home.

It's hardly a fair tax in the first place! The government service to process the new registration of a title for the property, as stated in 1987 was 0% from $0 to $30,000, .5% for values from $30,001 to $90,000. 1% for values from $90,001 to $150,000 and 1.5% for any amount over $150,000. This is more in line with what one might expect today as a user charge. For any property $75,000 or less the tax was not much different from the previous flat fee being charged by the Land Titles Office. It was said to be revenue-neutral.

Fast forward to 2011, where you have the average single family house price selling for over $250,000 and a 2% tax rate for any amount over $200,000. The potent combination of higher sale prices and the highest tax rate in the country makes the land transfer tax grab far in excess of anything initially contemplated in 1987. It now brings in over $50 million when in 1988 the Finance Minister Eugene Kostyra said it only raised half of the $9.7 million they had budgeted for.

Land transfer taxes have increased as much as 1800 per cent on the same home bought in 1987! WinnipegREALTORS® has put together a new addition to the 2muchltt.com website that is dedicated to showing comparisons in land transfer taxes paid for the same home in 1987 and in 2010/11. Here is just one example:

An older home in St. Boniface sold for $75,500 in 1987 and again for $266,000 in 2010. The land transfer tax increased 1305 per cent from $227.50 in 1987 to $2,648.00 in 2010. In both those respective years, this home's sales price was close to Winnipeg's overall single family average sales price. It is anything but revenue neutral in 2010. While looking at some of these comparisons in various neighbourhoods throughout Winnipeg, you will want to read a few of the statements home buyers are making on this tax. One of them really drives home the message.

"Although we purchased a house here in Winnipeg in 2003, its value has gone up considerably and at some point we are considering downsizing which of course would mean the purchase of another house or condominium. However, the thought of having to pay the increased amount involved in the revised 2004 tax (2%) makes us hesitant to go ahead. We will wait until something can be done to improve the LTT situation. I would appreciate any website that would keep us current on this situation or anything further we can do as homeowners." R. & D.

Coming up on its 25 year anniversary in 2012, this made in Manitoba land transfer tax or home buyers tax needs an overhaul and at minimum a real examination of its intent. Is the objective of the current provincial government to discourage, frustrate and even impede buyers from purchasing a home? Hopefully not, because with the increased immigration to our province, we should be doing exactly the opposite!

Manitoba has the lowest rental vacancy rate in the country at under 1 per cent. So realistically what options do we have other than to encourage a more robust first-time homebuyers market and by doing so, we will free up desperately needed rental units for Manitobans unable to buy a home.

How can you make a difference on this serious issue? Ask your candidate running in the provincial election what they are prepared to do with the land transfer tax if they get elected October 4th. Expect them to say 'where do we replace the money?'. There is a laundry list of things they can do to find more efficiencies (e.g. health care) to make up the lost revenues. The money home buyers keep will be put right back into the economy through all the purchases including renovations or alterations. If the government provides $10 million in home buyer tax relief it only represents one-tenth of 1 percent of the entire provincial budget.

Where are home buyers, especially first-time buyers, going to find the money to pay this tax? For many they are not be able to and they lose the opportunity of entering the home ownership market and build a solid foundation and future for their family. Others do manage to find the dollars from existing equity in their home but over a lifetime of moving (on average home owners can sell and move every 5 to 7 years) they lose thousands in dollars of equity, which is a counted on nest egg for their retirement.

In this election, take action and confront your candidates on this issue and learn more on this website.