Canada: New Provincial Housing Rebate And Transitional HST Rules For Real Property

The 2009 Ontario Budget proposed a single-value added sales tax ("HST") to replace the current system of federal Goods and Services Tax ("GST") and the provincial Retail Sales Tax ("RST"). On June 19, 2009, the Government of Ontario announced an enhanced new housing rebate proposal and certain transitional rules designed to assist taxpayers and businesses transition into the new HST regime.

Enhanced New Housing Rebate

The new housing rebate will be calculated as 75 per cent of the provincial portion of the HST payable on the purchase of a new home, up to a maximum of $24,000. New homes purchased as primary residences across all price ranges will qualify for a maximum rebate of $24,000.

The effect of the enhanced rebate will be to apply the provincial portion of the HST at a rate of 2 per cent on the first $400,000 of the purchase price of a new home and at a rate of 8 per cent on the portion above $400,000.

The new housing rebate program will be available for substantially renovated housing, owner-built housing, housing on leased land, mobile homes and modular homes used as primary places of residence.

Transitional Rules for Residential Real Property

Transitional HST rules for residential real property have also been proposed in order to help homebuyers and builders transition to the new tax system. The new HST regime will subject builders' sales of newly constructed or substantially renovated homes to the HST where both ownership and possession of the home are transferred after June 2010 (i.e. beginning July 1, 2010). Builders of newly constructed or substantially renovated single homes or residential condominiums who rent out such new homes or condominiums and are required to pay GST on self-supply after June 2010 will also be required to pay the provincial portion of the HST on self-supply. Similar rules will apply to new rental homes.

Sales of newly constructed or substantially renovated homes under written agreements of purchase and sale entered into on or before July 18, 2009, will be "grandparented" such that these sales will not be subject to the provincial portion of the HST even where both ownership and possession of the homes are transferred after June 2010. Purchases of newly constructed or substantially renovated single homes and condominium units for residential rental will be grandparented if the agreement of purchase and sale was entered into on or before June 18, 2009. Newly constructed or substantially renovated homes built by owners for their personal use, and mobile and modular homes will not be grandparented.

Builders of grandparented newly constructed or substantially renovated single detached, semi-detached and attached homes will be required to pay a transitional tax adjustment where the home is completed in full or in part after June 2010. The transitional tax adjustment will be calculated on the total purchase price of the home, as established for GST purposes, based on the extent of construction or substantial renovation completed as of July 1, 2010. Builders of newly constructed or substantially renovated residential condominiums will be required to remit a transitional tax adjustment.

New homes subject to the provincial portion of the HST may be eligible for a RST transitional housing rebate to provide relief in respect of the RST already embedded in the home price. The transitional rebate will be calculated as a proportion of the estimated embedded RST in the home, based on the degree of completion as of July 1, 2010. Eligible applicants will be permitted to calculate the estimated embedded RST by choosing one of two methods. Eligibility for the RST transitional housing rebate will not be affected by a purchaser's or builder's ability to claim the new housing or rental housing rebate.

This rebate will be available for non-grandparented single homes, condominiums and traditional apartment buildings as well as grandparented condominiums for which the transitional tax adjustment would be payable. For newly constructed or substantially renovated single detached homes, semi-detached homes, attached homes or duplexes, the RST transitional housing rebate will be available to individuals purchasing the home or to builders who first rent the home after June 2010. The rebate is only available where the HST will apply and not to grandparented homes. But for newly constructed or substantially renovated homes that are resident condominiums or traditional apartment buildings, the transitional rebate will be available to the builder rather than 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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