Canada: Returning To B.C.’s Provincial Sales Tax: Transitional Rules For New Housing

Last Updated: December 7 2012
Article by Mario Seyer and Audrey J. Diamant

This Tax memo updates our February 19, 2012, Tax memo "Returning to B.C.'s Provincial Sales Tax: Transitional rules for new housing" to reflect November 2012 announcements.

Purchasers, vendors and builders could be affected significantly by the expanded information requirements.


On February 17, 2012, British Columbia announced, in HST Notice#12, transitional rules to mitigate potential double taxation on new housing, because of the return to the 7% Provincial Sales Tax (PST) on April 1, 2013. The transitional rules stem from the August 26, 2011 provincial referendum, which caused British Columbia to commit to revoke the Harmonized Sales Tax (HST) and reinstate its PST. They await legislative approval.

The key changes announced in November 2012 are described in more detail below, starting on page 3, under "Disclosure requirements for builders." They expand the information requirements that a Canadian builder and foreign supplier1 must provide in:

  • the purchase and sale agreement;
  • an addendum to an agreement2; and
  • a statement of adjustment or other document.

These changes are effective December 1, 2012.

The following documents contain numerous complex disclosure requirements with which the vendor must comply:

  • British Columbia's New Housing Transition Tax and Rebate Act and a related regulation, which contain the changes; and
  • the revised GST/HST Notice No. 276 – Elimination of the HST in British Columbia in 2013 – Transitional Rules for Real Property Including New Housing (November 2012), released by the Canada Revenue Agency (CRA), which provides details of the specific information requirements that are included in the regulation.

Rules for real property

Under the transitional rules, the B.C. provincial component of the HST generally will cease to apply to sales of real property (including new residential housing) if ownership and possession transfer after March 31, 2013. This will be the case, regardless of whether:

  • the agreement of purchase and sale was entered into before April 1, 2013; or
  • construction of the newly built home began before April 1, 2013.

In general, PST will not apply to sales of real property. However, PST will apply if:

  • at the time of purchase, the housing is tangible personal property (e.g., a mobile home not affixed to land); and
  • possession transfers after March 31, 2013. The PST will also apply to construction materials that are used to improve real property after March 31, 2013.

Temporary transition tax and transition rebate

British Columbia intends to impose a new 2% temporary transition tax on certain sales of newly constructed or substantially renovated housing when:

  • the B.C. HST does not apply to the sale (i.e., if the Goods and Services Tax (GST) applies);
  • the construction or substantial renovation of the new housing is 10% or more completed as of April 1, 2013; and
  • ownership or possession of the new housing transfers, or a deemed sale of the new housing occurs (as is the case in a self-supply), before April 1, 2015. Special timing rules apply to residential condominium units.

The new transition tax will be payable by the purchaser and collectible by the builder. The builder must remit it to the CRA.

Housing that is subject to the B.C. transition tax may also be eligible for a transition rebate, which will be based on the total consideration payable for the housing and the degree of completion on April 1, 2013. Builders that are required to self-assess and pay the B.C. transition tax on their self-supply of housing after March 31, 2013, must calculate the transition rebate:

  • on the fair market value under the self-supply rules; and
  • based on the degree of completion on April 1, 2013.

Transition rebates will not be available for sales of mobile homes, floating homes and homes built by owners for their personal use. Builders claiming the transition rebate must certify that they paid PST on substantially all of the materials incorporated after March 31, 2013, and must keep receipts for audit purposes.

The temporary housing transition tax and the temporary housing transition rebates will be administered by the CRA. These measures are intended to be in place for two years, until March 31, 2015.

Grandparented sales of new Housing

Under the July 1, 2010 B.C. HST transitional rules, sales of single-unit homes (including residential condominiums) were subject to the GST and not the HST (i.e., grandparented) if the written agreement of purchase and sale was entered into before November 19, 2009.

With the introduction of the HST on July 1, 2010, builders of grandparented new housing became subject to a transitional tax adjustment and builders of residential condominiums were also eligible for a PST transitional new housing rebate. However, the transitional tax adjustment and the PST transitional new housing rebate generally will not apply when both ownership and possession of grandparented housing transfer after March 31, 2013.

Effective April 1, 2013, a new 2% transition tax will apply to these housing sales if:

  • the agreement of purchase and sale was entered before November 19, 2009; and
  • both ownership and possession transfer under the agreement after March 31, 2013.

For this purpose, the contracted purchase price for the grandparented housing will be deemed to include the 2% transition tax. Therefore, the transition tax equals 2/102 (approximately 1.9608%) of the consideration established for GST purposes at the time the agreement was entered into.

Builders will also be eligible for a new B.C. transition rebate on the consideration established for GST divided by 1.02 (approximately 98.04%) to take into account the transitional tax payable by the purchaser. The rebate will be adjusted to exclude any PST new transitional rebate that the builder claimed on the introduction of the HST.

Non-grandparented sales of new housing

The PST transitional new housing rebate was available on sales of newly constructed or substantially renovated homes:

  • under a written agreement of purchase and sale entered into after November 18, 2009;
  • when 10% or more was completed by July 1, 2010; and
  • that were subject to the 12% HST.

However, effective April 1, 2013, the 5% GST will apply and the PST transitional new housing rebate generally will not be available for sales of these homes if both ownership and possession transfer after March 31, 2013.

In addition, a new temporary 2% transition tax is intended to apply to these housing sales when:

  • construction began before July 1, 2010; and
  • ownership and possession of the housing both transfer after March 31, 2013.

However, this transition tax will not apply if:

  • construction was substantially completed before July 1, 2010; and
  • the July 2010 PST transitional new housing rebate was not claimed as of February 17, 2012. Builders will be eligible for a new B.C. transition rebate based on the degree of completion at July 1, 2010, subject to an adjustment to exclude any PST transitional new housing rebate previously claimed.

Disclosure requirements for Builders

Key new changes that are effective December 1, 2012, are intended to help purchasers understand how the various taxes apply.

To that end, builders of newly constructed or substantially renovated housing will be required to make certain disclosures:

  • in the written agreement of purchase and sale, and/or in a written addendum to that agreement; and
  • if the B.C. transition tax is payable on the sale at the time the written statement of adjustments is made.

The details depend on the dates, as outlined next.

1. Written agreements after February 16, 2012, and before December 1, 2012

For written agreements entered into after February 16, 2012, and before December 1, 2012, (unless ownership or possession of the housing transfers before January 1, 2013) by January 2, 2013, the vendor must provide to the purchaser a written and signed addendum to that agreement, including a Notice to Purchaser, containing prescribed information.

The Notice to Purchaser essentially outlines the application of various taxes to the sale of the housing and is required even if the vendor had previously complied with the disclosure requirements contained in HST Notice #12.

The specific wording of the Notice to Purchaser will depend on whether the vendor is a foreign supplier and must:

  • refer to GST/HST Notice 276; and
  • state that the transition tax may be payable by the purchaser and that the supplier may be eligible for the B.C. transition rebate.

2. Written agreements after November 30, 2012, and before April 1, 2015

For written agreements entered into after November 30, 2012, and before April 1, 2015, the vendor must include prescribed information in the written agreement, also incorporating a Notice to Purchaser.

The specific wording of the Notice to Purchaser must meet the conditions outlined in item 1, above.

3. Written agreements in respect of which the 2% B.C. transition tax is payable after March 31, 2013, and before April 1, 2015

For written agreements in respect of which the 2% B.C. transition tax is payable after March 31, 2013, and before April 1, 2015, the vendor must include prescribed information in the statement of adjustments or other document provided to the purchaser by the time that tax is payable on the sale of the housing.

Penalties for inadequate Disclosure

Builders could face the following penalties for inadequate disclosure:

  • for failing to fully and accurately disclose the required information: up to 1% of the home's price, to a maximum of $10,000 per sale.
  • for knowingly, or under circumstances of gross negligence, making or participating in making a false statement or failing to fully and accurately disclose the required information: up to 4% of the purchase price, to a maximum of $40,000 per sale.

The builder and an agent of the builder are jointly and severally liable for these penalties. Penalties may be reduced or waived in certain circumstances.

Enhanced new housing Rebates

The threshold for B.C. HST new-housing rebates will rise from $525,000 to $850,000, increasing the maximum rebate from $26,250 to $42,500. This rebate applies to newly constructed or substantially renovated homes purchased or constructed as a primary residence if the 12% HST is payable after March 31, 2012, and before April 1, 2013.

Basic Tax Content (BTC)

Basic Tax Content (BTC) is a formula that determines the non-recoverable GST/HST inherent in a property. Essentially, BTC is:

  • the total tax payable on the last acquisition and subsequent improvements to the property; less
  • any tax recoverable by way of rebate, refund or remission (excluding input tax credits), adjusted to current fair market value.

The BTC is relevant for changes of use, such as commercial to non-commercial and vice versa, registration of a small supplier, etc.

The post February 16, 2012 BTC calculation for B.C.-based property excludes the provincial portion of the HST on the last acquisition and on any improvements to the property, subject to certain exceptions for arm's length sales and self-supply scenarios in which tax is payable or deemed paid before April 1, 2013.

Managing the transition

The transitional rules and disclosures described above could affect purchasers, vendors and builders significantly. Any new agreement should address these rules, along with the required disclosures and transactions that may straddle the implementation period. Existing agreements should also be reviewed to ensure that any potential price implications are incorporated properly.

Builders and developers may need new procedures and systems modifications to determine whether GST/HST or PST apply and to ensure that purchase and sale agreements and statements of adjustments reflect the correct application of the taxes. Organizations that will pay PST or are required to self-assess must implement adequate policies and procedures to deal with these requirements.


1. The expression "foreign supplier"' refers to "... a non-resident person who makes a taxable supply of real property in Canada by way of sale and is not required to collect the tax."

2. The regulation defines an addendum to mean "... a document that includes information in relation to the agreement, does not amend the agreement, and need not be agreed to by the purchaser."

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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