Canada: HST Transitional Rules – British Columbia

Last Updated: February 29 2012
Article by Real Estate Group

Immediate action is required for new housing sales effective February 18th, 2012. Please review the article for highlights of the necessary disclosure requirements in purchase contracts starting effective February 18th, 2012.

On February 17, 2012 the BC Minister of Finance and the Federal Department of Finance released rules for the transition from Harmonized Sales Tax (HST) under the Excise Tax Act (Canada) (ETA) to Provincial Sales Tax (PST) under BC legislation. The rules include general transitional rules, an enhancement of the new housing rebate, a transitional housing tax, and additional disclosure obligations on builders.

General Transitional Rules

The general transitional rules will be based on the time at which tax in respect of the supply becomes payable under the ETA.

  • If tax becomes payable, or is paid without having become payable, before April 1, 2013, the HST would apply.
  • If tax becomes payable after March 31, 2013, without having been paid before April 1, 2013, the HST would not apply (and only GST would apply, subject to the Transition Tax for real property – see below).

B.C. Transition Tax

British Columbia intends to impose a 2 percent transition tax on the sale of newly constructed or substantially renovated homes that are subject to the GST, but no longer subject to the HST. Where a new housing unit is 10 percent or more complete as of April 1, 2013 and either: (i) ownership or possession of the unit is transferred before April 1, 2015 or (ii) a deemed sale of the unit, such as a self‐supply, occurs before April 1, 2015, the purchaser will be required to pay the tax, which will be calculated on the total consideration paid on the property.

A transition rebate will be available to builders to offset PST on materials and help prevent doubletaxation on homebuyers. This rebate generally will be calculated on the proportion of the housing unit completed as of April 1, 2013 and on either the fair market value of the housing unit, for self‐supplies, or the total consideration received by the builder on the housing unit. Special rules will apply to housing units that straddle the introduction of the HST on July 1, 2010 and the ending of the HST on March 31, 2013.

Disclosure – Immediate Action Required

For agreements of purchase and sale entered into after February 17, 2012 and before April 1, 2015, builders will be required to provide further disclosure in the agreements themselves, as well as reporting to CRA. The disclosure requirements are as follows:

On signing the agreement of purchase and sale

  • Under the transitional rules to be introduced for new housing, the contracted price in agreements signed after February 17, 2012 must not be inclusive of the B.C. transition tax. The builder must disclose in the agreement of purchase and sale that the contracted price is exclusive of any B.C. transition tax and the associated B.C. transition rebate that may apply.

The builder must also disclose whether the contracted price is inclusive or exclusive of the 7 per cent provincial component of the HST and the B.C. new housing rebate, if applicable. The builder must also include the following statement in the agreement of purchase and sale (or in a similar document):

  • "If ownership and possession of a newly constructed or substantially renovated home transfer on or after April 1, 2013: the 7 per cent provincial component of the HST and the B.C. new housing rebate for primary residences will generally no longer apply;
  • a B.C. transition tax of 2 per cent may become payable; and " the builder may become eligible for an associated B.C. transition rebate."

At the time the statement of adjustments is Made

The CRA requires the builder to report the amounts of the HST (or the GST) and of the federal and British Columbia new housing rebates factored into in the contracted price. In this case, the builder must disclose on a specified form and in a specified manner, the following information to the CRA. The information must also be provided in writing to the purchaser.

  • The consideration, as established for GST purposes.
  • The amount of B.C. transition tax charged.
  • The degree of completion in the construction of the new housing as of April 1, 2013.
  • The amount of the B.C. transition rebate, if any, for which the builder is eligible in respect of the new housing.

Provincial disclosures at the time the statement of adjustments is made will be required only if the new housing was more than 10 percent completed on April 1, 2013.

It should be noted that builders will not be permitted to set out contract prices in agreements of purchase and sale that are inclusive of the B.C. Transition Tax. You must therefore modify contracts immediately to comply with the transitional rules. If a builder fails to fully and accurately disclose the required information, the builder may be subject to a penalty of up to 1 per cent of the home price to a maximum of $10,000 per home.

Builders will be faced with additional disclosure requirements at the time the statement of adjustments is made, with respect to the new housing rebate for contracts of purchase and sale entered into prior to February 17, 2012.

Enhanced New Housing Rebate

The B.C. government has enhanced the B.C. new housing rebate for purchasers who purchase a principal residence on which HST is payable and the HST becomes payable on or after April 1, 2012 and before April 1, 2013. For real property, tax generally becomes payable when ownership or possession is transferred, whichever is earlier.

However, if the property is a residential condominium unit in a condominium complex which has not, at the time possession is transferred, been registered as a condominium, then tax is not payable until ownership is transferred or, if earlier, 60 days following the date of registration. Homes with a purchase price of $850,000 or less will be eligible for the new housing rebate on the entire purchase price of their home. Persons who purchase homes with a purchase price of greater than $850,000 will be entitled to a maximum rebate of $42,500. Where the housing unit is purchased but the land is leased, the rebate applies only to the HST paid on the housing unit itself. The enhanced rebate will also apply to a self‐supply of a principal residence. The BC new rental housing rebate will also be enhanced to match the monetary limits set out in the new housing rebate.

Persons who purchase second or vacation homes outside of the Capital and the Greater Vancouver Regional districts will also now qualify for the new housing rebate. Where a person purchases such a home and the HST on the home becomes payable on or after April 1, 2012 and before April 1, 2013, the purchaser will be entitled to the new housing rebate. The monetary limitations are the same as for the principal residence housing rebate.

Purchasers must file their applications for the existing or enhanced new housing rebate before April 1, 2017 to obtain the rebate.

Deemed Self-Supplies

In certain situations, a builder may be deemed to have made and received a taxable supply by way of sale of real property. The transitional rules for deemed self‐supplies of real property are as follows:

  • The HST will apply to a self‐supply of real property deemed to have been made by way of sale before April 1, 2013.
  • The HST will not apply (and only GST will apply) to a self‐supply of real property deemed to have been made by way of sale after March 31, 2013.

About Fraser Milner Casgrain LLP (FMC)

FMC is one of Canada's leading business and litigation law firms with more than 500 lawyers in six full-service offices located in the country's key business centres. We focus on providing outstanding service and value to our clients, and we strive to excel as a workplace of choice for our people. Regardless of where you choose to do business in Canada, our strong team of professionals possess knowledge and expertise on regional, national and cross-border matters. FMC's well-earned reputation for consistently delivering the highest quality legal services and counsel to our clients is complemented by an ongoing commitment to diversity and inclusion to broaden our insight and perspective on our clients' needs. Visit: www.fmc-law.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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