HST Transition Rules

The provincial government has provided rules/guidance on how it will transition to the implementation of the proposed Harmonized Sales Tax.

• The HST is NOT YET IN EFFECT. The HST will come into effect beginning on July 1, 2010; however, note transition rules below.
• HST will not apply on the purchase price of re-sale homes.
• HST would apply to services such as moving cost, legal fees, home inspection fees, and REALTOR® commissions.
• HST will apply to the purchase price of newly constructed homes. However, the Province is proposing a rebate so that new homes across all price ranges would receive a 75 per cent rebate of the provincial portion of the single sales tax on the first $400,000. For new homes under $400,000, this would mean, on average, no additional tax amount compared to the current system. 

Transitional Rules for New Housing

• Generally, sales of new homes under written agreements of purchase and sale entered into on or before June 18, 2009 would not be subject to the provincial portion of the single sales tax, even if both ownership and possession are transferred on or after July 1, 2010.
• The tax would also not apply to sales of new homes under written agreements of purchase and sale entered into after June 18, 2009 where ownership or possession is transferred before July 1, 2010.

Additional Transitional Rules

• Where services straddle the HST implementation date of July 1, 2010, the tax charged for the service may have to be split between the pre-July 2010 and post-June 2010 periods. However, the HST will generally not apply to a service if all or substantially all (90% or more) of the service is performed before July 2010.
• Four key timelines are important (see below). All are based on the earlier of the time the consideration is either due (In general, an amount is due on the date of the invoice or the day required to be paid pursuant to a written agreement), or is paid without having become due. If consideration is due or paid,

• Before October 15, 2009, HST will generally not apply (however, see above transition rules for new housing).
• From October 15, 2009 to April 30, 2010, certain business that are not entitled to recover all of their GST/HST paid as input tax credit may be required to self-assess the provincial component of the HST with respect to goods or services supplied after June 30, 2010.
• From May 1, 2010 to June 30, 2010, HST will generally apply for services supplied after June 30, 2010.
• After June 30, 2010, HST will generally apply. An exception to this rule would be where ownership of the property is transferred before July 2010 or the invoice relates to services provided before July 2010. 

• With regard to the lease or license of goods, including non-residential real property, HST will generally apply to lease intervals or payment periods on or after July 1, 2010 and the general rules noted above will apply. However, where a lease interval begins before July 2010 and ends before July 31, 2010, it is not subject to HST.
• With regard to the sale of non-residential property, HST is due where both possession and ownership of non-residential property occurs on or after July 1, 2010.

More Detail

Additional detail on the transition rules is available at the provincial government web site here or by calling the provincial government enquiry line at 1-800-337-7222.

Buy now! HST is on the way

The new harmonized sales tax being proposed in British Columbia and Ontario may end up being an overall wash for some consumers but anyone buying a new house is about to get dinged.

The HST met with some resistance from the real-estate sector in Canada’s largest province when it was first proposed earlier this year but the government agreed to some concessions.

New homes in Ontario currently just face a 5% goods-and-services tax, which builders have buried in the price of the home since the tax was introduced 19 years ago. Starting on July 1 of next year, new houses would face a combined HST which would be 13% in Ontario.

With new-home sales slowing after a seven-year bull run, the last thing the industry needed was something that would curtail activity further.

There was a sigh of relief when the government agreed to grandfather from the tax any deals signed prior to the date the announcement was made — June 18, 2009. Deals closed before July 1, 2010 would also not face the tax.

Everybody else was in trouble. So the government came up with an exemption from the added tax on the first $400,000 of any new home, meaning consumers outside of Toronto were for the most part unaffected.

Despite the government’s “generosity,” about 40% of people buying a new home in Toronto are going to face a major tax hit. That’s the percentage of new homes that sell for more than $400,000.

On a $500,000 home in Toronto, the HST will mean $6,000 in new taxes. Here’s how it works. The HST means an additional $40,000 in new taxes on that home, based on 8%. Builders get an estimated 2% tax credit on supplies, lowering the bill to $30,000. Minus a $24,000 tax break on the first $400,000 and you get to $6,000.

So who is going to pay for that $6,000? As the price goes up, the tax bill gets higher. It’s $36,000 for a $1-million home.

“I don’t know this for a fact but I don’t think any builder will make [the HST] an extra closing cost because they imbedded the GST for so long,” says Stephen Dupuis, chief executive of the Toronto-based Building & Industry Land Development Association.

Maybe that extra tax is not added on to the sticker price, but at some point the consumer is going to pay. Maybe through a higher price, cheaper materials or fewer finishings thrown in.

“A tax like this is going to be passed on to the consumer over time and the consumer is going to lose,” says Brian Johnston, president of Monarch Corp., one of Toronto’s largest home builders.

Economist Benjamin Tal, of CIBC World Markets, predicts the tax will have an impact on housing sales. “It’s not like something you can brush under the carpet,” says Mr. Tal. “There will be reduced demand.”

He predicts the industry will build more houses without all the finishings. That will leave the consumer to do work on the black market with contractors to avoid the HST. That’s what happened in the Maritimes, where the HST has been in play for years, said Mr. Tal.

“This will give a boost to the under-the-table transactions. Is that an optimum thing?” says Mr. Tal.

It’s no wonder British Columbia’s housing industry is fighting the HST tooth and nail. It’s not interested in the Ontario compromise of an exemption on the first $400,000 of a home. B.C will provide a $20,000 tax break on the first $400,000 of a purchase, the amount being lower because the province has a 7% sales tax.

“There is no single family home here you can buy at that price,” says Peter Simpson, chief executive of the Greater Vancouver Home Builders’ Association. “They’ve taken what happened in Ontario and thought it would fly here. They underestimated the pushback on HST out here.”

The provincial budget released this past week gave few hints the province might back down on taxing the industry, other than a throwaway line that it would work with industry groups to minimize the impact of the HST.

Mr. Simpson says he’s not interested in any compromise, including any compromise that might grandfather housing now under construction from the new tax.

“I won’t even talk about that. It will mean we’ve given in and we’re not,” says Mr. Simpson.

Good luck. Something tells me the cost of housing in B.C. is going to rise.

Dusty Wallet Having just come back from vacation, DW is amazed by the difference in exchange rates one gets at the airport, the bank or those currency traders located in the little booths. Shop around, rates can vary by as much 10%.

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