How will the HST impact the real estate sector?
As proposed, the HST will increase the cost of buying or selling all types of property and becomes essentially an additional tax on home ownership. REALTOR® commissions, appraisals and other services will be subject to a 12% HST, replacing the 5% GST now charged, and new homes will be subject to the full HST.
The HST would generally apply to a supply of a service to the extent that the service is performed on or after July 1, 2010. The HST would generally not apply, however, to a supply of a service if all or substantially all (90% or more) of the service is performed before July 2010.
For more information and to see the General Transitional Rules for BC, click here. For the Residential Housing New Housing Rebates and Transitional Rules for BC click here.
How will bare land be impacted?
According to BDO Dunwoody, the sale of land is currently the one supply where the GST may become collectible, regardless of the GST registration status of the seller. With the implementation of the HST, land sales that are subject to the 5% GST will become subject to the 12% HST. Any person who sells land should determine whether the HST is applicable to the sale. PST does not apply to the sale of bare land.
GST taxable sales of bare land do not require (or allow) for the seller to collect the GST from the buyer if the buyer is registered for the GST at the time of the sale. These same rules are expected to apply for the HST. A seller who makes a taxable sale of bare land to a buyer who claims to be registered for the HST should verify the HST registration with the Canada Revenue Agency (CRA). The CRA has established its own website (www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/gsthstrgstry/menu-eng.html) that allows a person to verify the registration status of a seller.
When a buyer who is registered for the HST acquires land that is subject to the tax, they are required to self-assess the HST payable on their HST return. Generally, when the land is used more than primarily (50%) in the buyer's commercial (taxable) activity, a full input tax credit can be claimed on the same return. The reporting of the self-assessment and the entitlement to claim a full input tax credit should result in no net tax for the buyer.
The HST charged on real estate commissions related to sales of bare land should be fully recoverable, provided the seller is an HST registrant and was using the land exclusively
When does HST become payable?
BDO Dunwoody anticipates transitional rules similar to those imposed for other harmonization and used in the recent federal reductions of the GST. If these rules apply, where a purchase and sale agreement for a new home is entered into on or after July 23, 2009, and ownership or possession of the house is given to the purchaser before July 1, 2010, the GST at 5% should apply to the sale. For new homes where the purchase and sale agreement is entered into on or after July 23, 2009, and both ownership and possession is given to the buyer after June 30, 2010, the HST at 12% is expected to apply to the sale.
For new homes where the purchase and sale agreement was entered into with the buyer before the July 23, 2009 government announcement, it is expected that only the GST at 5% will apply, regardless of when ownership and possession transfers to the buyer.
Is there any relief for buyers of new homes?
To offset the increase in costs, the Government of BC plans to offer a partial rebate of the provincial portion of the HST for new (and substantially renovated existing) housing to ensure that new homes up to $525,000 will bear no more tax than under the current PST system, while homes above $525,000 will receive a flat rebate of $26,250. New home sales over $525,000 will be impacted, as buyers will have to pay an additional 7% tax less the $26,250 flat rebate.
For more information and to see the Residential Housing New Housing Rebates and Transitional Rules for BC click here.
How will the proposed rebate for new and substantially renovated existing homes work?
Proposed to Take Effect on July 1, 2010 |
Tax: 12 per cent HST |
| New Home Price Level | Rebate |
Up to $350,000 | Partial Rebate on Federal Portion of HST (GST) |
| 71.43% Rebate on Provincial Portion of HST |
| Government expects total impact to be equivalent to existing tax system before July 1, 2010 |
$350,000 t0 $450,000 | Rebate on Federal Portion of HST (GST) clawed back (straight-line method) |
| 71.43% Rebate on Provincial Portion of HST |
| Government expects total impact to be equivalent to existing tax system before July 1, 2010 |
$450,000 to $525,000 | 71.43% Rebate on Provincial Portion of HST |
| Government expects total impact to be equivalent to existing tax system before July 1, 2010 |
Over $525,000 | $26,250 Fixed Rebate on Provincial Portion of HST |
Existing System Before July 1, 2010 |
Tax: 5 per cent GST |
| New Home Price Level | Rebate |
Up to $350,000 | Partial Rebate on Federal Portion of HST (GST) |
$350,000 to $450,000 | Partial Rebate on Federal Portion of HST (GST) gradually eliminated |
Over $450,000 | No Rebate |
Why was $525,000 chosen as the threshold for the rebate for new homes?
On November 18, 2009 the provincial government announced the HST transitional rules on housing which includes a threshold increase from $400,000 to $525,000, moving the threshold to above the median new home price in the province. The original $400,000 threshold reflected the median price of new housing in urban areas in BC in 2008. Homes priced above $525,000 will receive a flat rebate of $26,250. The rebate will be available whether the new housing is to be owner occupied or rented.
According to the government news release announcing the transitional rules, the limit was increased due to feedback from consumers and the industry. To read the news release and backgrounder click here.
For more information and to see the Residential Housing New Housing Rebates and Transitional Rules for BC click here.
in commercial activities.
“Copyright British Columbia Real Estate Association. Reprinted with permission.”