The provincial government punishes first-time and repeat house buyers, homebuilders and the Manitoba economy with its punitive land transfer tax. If the tax had been implemented as a fee rather than a tax, it would be illegal – the Supreme Court of Canada ruled ‘government fees’ should not exceed the cost of the service provided.
In 1987, the NDP government of Howard Pawley implemented the land transfer tax. The tax schedule remains as it was when implemented almost 30-years ago. Based on the sales price, the tax starts at $82 plus .5 of 1% of the first $30,000 and rises to 2% beyond $200,000.
In 1987, the average house sold for $80,000, requiring $251 in land transfer tax. Fast forward 28-years, the average house now sells for $280,000 (requiring a land transfer tax of $3,400). In 1987, the total value of Winnipeg property sales approximated $750-million, generating total transfer taxes of less than $5-million. This year, sales will exceed $2.5-billion, generating about $50-million in land transfer taxes for the provincial government.
Part of the problem is that the tax schedule has not been adjusted to reflect inflation, increasing population, design improvements and immigration pressures. The tax now yields a usurious result, happily for a revenue vacuuming government oblivious to the damage it inflicts.The government’s approach matches its line on personal income tax exemptions, those exemptions are not indexed either.
Manitoba’s land transfer tax is not only usurious, it is also out-of-step with other provinces. The other prairie provinces charge much lower fees on house sales.
On a house sale of $280,000, Alberta’s land transfer tax would be $95, while Saskatchewan would charge $840. Compare those fees with Manitoba’s $3400, and then consider that average wages are much higher in those provinces than here while their income and other taxes are much lower. Many provinces either exempt or drastically reduce the tax for first-time buyers. Not Manitoba, where the need for more and more revenue for government outweighs any sense of reasonableness. Adding injury to the already hurt, the NDP requires PST on mortgage insurance premiums, a tax recently boosted to 8%
Who gets hurt by this rapacious approach to home building and realty sales? First, households, already taxed heavily. Also, first-time house buyers, often scrambling to pull together the minimum down payment. Add in homebuilders, wanting to keep costs down for buyers in an environment marked by relatively low incomes. Also the sellers, who have a smaller market to sell into with potential buyers remaining renters partly due to excessive taxation. And, last but not least the provincial economy, already struggling with slowly rising disposable incomes, a hesitant real estate market and an absence of new large private industry.
What should be done? Start with an exemption for first-time buyers. Then, revise downward the tax schedule. The current tax brackets should be changed and then indexed for inflation. The top levy of 2% should only apply to the portion of the sales price that exceeds, say, $600,000. For lower-priced homes, $280,000 and less, cap the tax at $1,000. Also, drop the PST on mortgage insurance. Affordability is important, stop gouging!