A housing industry-sponsored study claims the province's move to create a harmonized sales tax will cost new homebuyers in Ontario $800 million annually.

The Building Industry and Land Development (BILD) Association study also claims the move could threaten up to 21,200 jobs by depressing demand for homes by about 15 per cent.

However, Premier Dalton McGuinty told the legislature on Monday that the vast majority of homes won't be affected.

"It's important to understand that we've chosen to help the 97 per cent of families who buy resale homes or homes under half a million dollars," he said.

But about one-third of homes in the GTA sell for more than $400,000.

In the 2009 provincial budget delivered on March 26, McGuinty's Liberal government unveiled a plan -- supported by the federal Conservative government -- to harmonize the provincial sales tax with the federal GST.

The province won't cut the PST rate of eight per cent even though the harmonized version will cover a wider range of goods and services.

With respects to homes, the province will exempt new dwellings under $350,000 in value.

Purchasers of new homes worth up to $500,000 will get a rebate on the provincial portion of the new tax.

"The effect of the housing rebate would be to ensure that, on average, new homes under $400,000 would not be subject to an additional tax burden," the government wrote.

But a family buying a $500,000 home would pay an additional $40,000 in tax.

The government also announced some tax credits, tax cuts and claimed that 93 per cent of Ontarians would get a tax cut under this budget.

The new harmonized tax will come into effect on July 1, 2010. The government has sold it as good for the province's long-term economic health, in part by making things more efficient for businesses.

The Canadian Taxpayers Federation said a lot of consumers are going to be shocked in just over a year.

"I'll be you that a lot of people aren't aware this is going to happen," the federation's Kevin Gaudet said. "Fourteen months from now, people are going to be shocked and astonished as their bills climb by eight per cent."

However, some businesses such as funeral homes, which had been exempt from the PST, have complained about being hit by the new tax.

Frank Clayton of the Altus Group, who wrote the report for BILD, said it isn't the wealthy who buy new homes worth more than $400,000.

About 30 per cent of those buying homes worth between $400,000 and $500,000 have an annual income of $70,000 or less.

About half have incomes of under $100,000, it said.

Clayton said the tax burden jumps by $32,000 when one purchases a new $500,000 home versus a new $400,000 one.

"This extraordinarily large increase in taxes will undermine the opportunity for middle-income Ontarians to purchase a new home, erode the competitiveness of new homes versus the large stock of existing homes, reduce the volume of new housing being built and cause buyers to move away from urban centres to obtain less expensive housing that escapes the burden of the new tax," he wrote.

In the legislature, NDP Leader Andrea Horwath declared the HST to be "the wrong tax at the wrong time," while acting Conservative Leader Robert Runciman echoed the report's concern that the tax could fuel renovation activity in the underground economy.

The report laid out three suggested options:

  • Making the tax treatment of new housing neutral by applying a two per cent rate against all new housing
  • tax the first $400,000 at 2 per cent then apply a progressive tax structure against the portion valued above $400,000
  • update the GST price threshold option by adjusting for inflation.

The first option would be best for first-time buyers, it said, while the second would eliminate the sharp rise in the marginal tax rate for those homes priced at more than $400,000.

With a report from CTV Toronto's Paul Bliss