Wed | Sep 19, 2018

Your dream home will be taxed

Published:Sunday | October 12, 2014 | 12:00 AM

Tameka Gordon, Business Reporter

First-time home owners will soon begin to feel the effect of a little-known tax measure, the construction agreement stamp duty, which imposes added costs to residential purchases, says veteran real-estate attorney, Alton Morgan.

But despite being on the books since the 1990s, many in the construction sector are clueless about the tax measure which is paid by the person having a house built.

The 5.5 per cent tax has caught some potential home- owners by surprise and presents a "burdensome" taxation mechanism which will, in effect, lock more first-time homeowners out of the market, Morgan said at the Caribbean Association of Housing Finance Institutions (CASHFI) regional housing conference in Kingston, last week.

The conveyance attorney further charged that local mortgage lenders could soon see a decrease in the demand for build-on-own-land loans as potential home owners react to the stamp duty payable on the construction of homes in subdivisions.

As noted in the Schedules of the Stamp Duty Act, any agreement for construction of a house that exceeds $500,000 is subject to a stamp duty of 5.5 per cent.

"It imposes a tax on building contracts, but it seeks to give rebate for contracts of a certain value. In the 1990s, $500,000 would have been significant for a house, so if the contract values less than that $500,000 then provision would not apply to that contract," said a source at the Stamp Office, who requested anonymity in order to speak.

The tax measure has, for the most part, been largely ignored over the years, Morgan said, but has now become the subject of renewed interest.

The tax has mostly been paid by "larger developers," the Stamp Office representative said.

The contractors and developers typically file the agreement stamp duty simultaneously with the sale of land agreements, the source said but, have over the years, found ways to circumvent the procedure by not submitting the construction agreement to the Stamp Office.

"We have now begun to request the construction agreement," the person said while conceding individual home owners who opt not to ink a construction agreement, effectively escape the tax mechanism.

While the Stamp Office is challenged to police the sector and ensure everyone complies, some persons have voluntarily filed that stamp duty, the source said.

No data was immediately available through Tax Administration Jamaica to indicate the size of collections since enforcement of the tax.

For Morgan, the provision overexposes first-time home owners to additional costs and pushes home ownership further from the reach of young people who must also pay General Consumption Tax (GCT) on building material.

He characterised the provision as a "horrendous tax" noting three clients who have paid over in excess of $250,000 in agreement stamp duty on properties they attempted to build.

Morgan further contends mortgage lenders "are going to see that the demand for build on own lands diminish shortly" as the additional tax burden takes hold, and will further dampen the independent construction market.

Contractors with whom Sunday Business spoke, were unaware of the tax.

"I don't know of this, I am aware of the Contractor's Levy but this is news to me," said Moorlands Estate developer Carton Maxwell.

As for the Incorporated Masterbuilders Association of Jamaica: "We are not aware of it, I haven't heard anybody say anything about it, (but) is the owners that will feel it," said Technical Coordinator Pervis Rodgers.