B.C. Announces PST Re-Implementation Date And Transitional Relief/Rules For New Housing
On February 17, 2012 the B.C. Ministry of Finance announced that the PST will be re-implemented effective April 1, 2013.
The Ministry also announced the introduction of:
1. an Enhanced New Housing Rebate during the transition period;
2. the B.C. Transition Tax and Transition Rebate;
3. Builder Disclosure Requirements for the Transition Period (including penalties for non-compliance); and
4. a Grant for Purchasers of New Residential Housing Used as a Secondary or Recreational Residence during the transition period.
The Ministry also announced certain rules that apply in specific (less common) circumstances.
These announcements and transitional measures have two purposes.
The first is to reduce the incentive for prospective purchasers of new housing to wait until after April 1, 2013 to purchase a new home.
The second is to ensure that there is no advantage for builders who construct homes during the HST period and claim input tax credits with respect to HST incurred on construction costs but sell those homes after April 1, 2013 and are not required to charge HST on the sale.
Enhanced New Housing Rebate
On the introduction of the HST the Ministry announced that a new housing rebate would be made available to qualifying purchasers of new homes in the amount of 5% of the purchase price of the home up to a maximum of $26,250. This rebate will offset some of the provincial component of the HST in many circumstances. The rebate was capped at $26,250 where the purchase price of the home exceeded $525,000.
The Enhanced New Housing Rebate, effective April 1, 2012, makes available to qualifying purchaser of new homes a rebate in the amount of 5% of the purchase price of the home up to a maximum of $42,500.
The effect of the Enhanced New Housing Rebate is that a 5% rebate is available for qualifying purchasers of new homes with a purchase price of up to $850,000. The rebate is capped at $42,500 if the purchase price of the home exceeds $850,000.
The requirements to qualify for the Enhanced New Housing Rebate have not changed as a result of this February 17, 2012 announcement. The home must be newly constructed or substantially renovated residential housing used as a primary place of residence by the purchaser or a qualifying relation of the purchaser.
This enhancement to the rebate should reduce the incentive for prospective purchasers of homes with a purchase price of more than $525,000 to wait to buy until after April 1, 2013.
The analogous rebate for builders of new rental housing who are liable for HST under the self-supply rules has also been enhanced to a maximum of $42,500.
B.C. Transition Tax and Transition Rebate
The B.C. Transition Tax imposes a 2% tax on sales of new homes where:
1. HST does not apply to the sale (i.e. possession/ownership of the home transfers after April 1, 2013;
2. the construction or substantial renovation of the new housing is 10% or more completed as of April 1, 2013; and
3. ownership or possession of the new home transfers before April 1, 2015.
Generally the B.C. Transition Tax will be payable by the purchaser and will be 2% of the total consideration for the sale of the new home.
The purpose of the 2% Transition Tax is to level the playing field for homes constructed before April 1, 2013 and those constructed after April 1, 2013.
Where a home is constructed prior to April 1, 2013 the builder would pay HST on the cost of building materials but would generally be able to claim back all that HST as an input tax credit. Prior to April 1, 2013 there is no PST so the builder would not be charged PST on the building materials. There is no tax embedded in the price of the home. If possession/ownership of the new home is transferred after April 1, 2013 HST will not apply to the sale.
Where a home is constructed after April 1, 2013 the builder will pay PST on the cost of building materials. The builder will not be able to claim that PST back in any form and the PST will be embedded in the cost of the new home which should result in a higher price for the home.
The Ministry estimates that the embedded PST will constitute 2% of the purchase price of a new home. Accordingly, to level the playing field between the two scenarios described above, the B.C. Transition Tax was introduced.
Where the construction of the new home straddles April 1, 2013 it is not fair that the sale is taxed the entire 2% B.C. Transition Tax: To the extent that construction occurs after April 1, 2013 the price of the home will already include embedded PST.
The B.C. Transition Rebate compensates for this scenario and provides a rebate to the builder based on the total consideration for the home and on the degree of completion of the home at April 1, 2013.
|Degree of Completion of Construction as of April 1, 2013
|Transition Rebate as a Percentage of Consideration
|Less than 10 percent
|Not applicable as B.C. Transition Tax not charged
|10 per cent – 24 percent
|25 per cent -49 percent
|50 per cent -74 percent
|75 per cent -90 percent
|90 percent or more
Builder Disclosure Requirements During Transition Period
The Ministry’s announcement includes detailed rules for builders with respect to written disclosure that must be made to purchasers and the Canada Revenue Agency.
If a builder fails to accurately and fully disclose the required information the builder could be liable for a penalty of 1% of the purchase price of the home to a maximum of $10,000.
If a builder knowingly, or under circumstances amounting to gross negligence, makes or participates in making a false statement or fails to fully and accurately disclose the required information the builder could be liable for a penalty of 4% of the purchase price of the home up to a maximum of $40,000.
Builders should review the disclosure requirements carefully with their legal advisors to ensure they do not expose themselves to these penalties and to ensure that purchasers clearly understand the tax treatment that will apply to the purchase of their new home.
Grant for Purchasers of New Residential Housing Used as a Secondary or Recreational Residence during the transition period
The Ministry also announced on February 17, 2012 the introduction of a grant for the purchase of qualifying new residential housing used as a secondary or recreational residence.
Without this grant a rational buyer, where possible, would be motivated to wait until after April 1, 2013 to purchase a second home or recreation property. Without the grant, the HST (12%) would apply to the purchase of such real estate prior to April 1, 2013 (without the relief of any new home rebate which requires the home be the primary residence of the purchaser or a qualifying relation of the purchaser). After April 1, 2013 only the GST (5%) would apply to the purchase.
A purchaser is eligible for the grant where:
1. a new residential home is purchased for use as a secondary or recreational residence;
2. HST becomes payable and is paid on or after April 1, 2012 and before April 1, 2013; and
3. the home is located in a qualifying area of the province (outside the Capital Regional District and the Greater Vancouver Regional District).
The grant will be 5% of the purchase price of the home up to a maximum of $42,500.
Purchasers must apply for the grant directly to the B.C. Ministry of Finance after the HST has been paid on the home.
Other Specific Circumstances
The Ministry’s announcement of February 17, 2012 also includes details regarding the HST treatment of sales of new homes in some very specific circumstances such as:
1. where possession/ownership transfers after April 1, 2013 but under a written contract for purchase and sale entered into on or before November 18, 2009; and
2. where possession/ownership transfers after April 1, 2013 but construction began prior to July 1, 2010.
These circumstances are generally described as double-straddling transactions and require some specific rules. If your transaction is a double-straddling transaction you should seek advice regarding the tax treatment.
Matthew Kraemer is a tax lawyer at Pushor Mitchell. You can contact him at firstname.lastname@example.org or (250)869-1145.