B.C.’s transitional rules for new home sales
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B.C. announced new relief measures for purchasers and builders of new homes. The B.C. new housing rebate threshold will be increased to $850,000, effective April 1, 2012 to March 31, 2013; meaning qualifying newly built homes will now be eligible for a provincial HST rebate of up to $42,500 (previously $26,250). Eligible purchasers of new homes with a purchase price of up to $850,00 will be entitled to a rebate of 71.43% of the provincial component of the HST paid up to a maximum of $42,500.
Builders will be asked to pay or credit the enhanced portion of the rebate to the purchaser where they have agreed to pay or credit the existing B.C. new housing rebate.
The existing new rental housing rebate will also be enhanced so that the rebate will be calculated as 71.43% of the provincial component of the HST paid, up to a maximum of $42,500.
In addition, purchasers of new secondary vacation or recreational homes outside the Greater Vancouver and Capital regional districts priced up to $850,000 will be eligible to claim a provincial grant of up to $42,500, effective April 1, 2012.
Transitional rules for new home sales
B.C.’s portion of the HST will continue to apply before April 1, 2013. Purchasers will be eligible for the new higher B.C. HST new housing rebate, of up to $42,500, and builders will continue to claim input tax credits.
B.C.’s portion of the HST will no longer apply to newly built homes where construction begins on or after April 1, 2013. Builders will once again pay 7% PST on their building materials. On average, about 2% of the home’s final price will again be embedded PST.
For newly built homes where construction begins before April 1, 2013, but ownership and possession transfer after, purchasers will not pay the 7% provincial portion of the HST. Instead, purchasers will pay a temporary, transitional provincial tax of 2% on the full house price. Builders will receive temporary housing transition rebates to offset PST on materials to help prevent double-taxation on homebuyers.
B.C. transition tax
The transition tax will apply to sales of newly constructed or substantially renovated housing where:
- the HST does not apply to the sale (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 (i.e., self‐supply) occurs, before April 1, 2015.
Self-supply of new housing
For GST/HST purposes, in some cases, a builder is considered to have made a self-supply of new housing and is required to pay GST/HST on the self‐supply. These are generally cases where the builder claims input tax credits for costs incurred during construction and the builder is also the final owner of the new or substantially renovated housing. For example, a builder that constructs a traditional apartment building and operates it as a landlord or a public service body that constructs and operates a social housing complex, is required to pay GST/HST on the self‐supply.
In cases where the builder is required to pay GST on a self‐supply made on or after April 1, 2013 and the construction or substantial renovation of the housing is more than 10% completed as of April 1, 2013, the builder will be required to pay the B.C. transition tax of 2% calculated on the fair market value of the housing. The transition tax will become payable on the day that the self‐supply occurs.
B.C. transition rebate
For sales of newly constructed or substantially renovated housing that will be subject to the B.C. transition tax, B.C. intends to provide a transition rebate to the builder. A transition rebate will only be available if the transition tax has become payable in respect of the new housing for which it is claimed. For builders who make sales of newly constructed or substantially renovated housing that is subject to the transition tax, the transition rebate for new housing will be calculated on the total consideration for the housing and on the degree of completion of the housing as of April 1, 2013.
For builders who are required to self‐assess and pay the B.C. transition tax on a self‐supply of new housing on or after April 1, 2013, the B.C. transition rebate will be calculated on the fair market value under the self‐supply rules and on the degree of completion of the housing as of April 1, 2013.
Builder certification requirements
To claim the B.C. transition rebate, the builder will be required to certify that the builder paid PST on substantially all of the building materials that were incorporated on or after April 1, 2013 into the newly constructed or substantially renovated housing. The builder will also be required to keep receipts for audit purposes.
Special transitional rules will apply to sales of new housing where a written agreement of purchase and sale was entered into on or before November 18, 2009, or the housing construction began before July 1, 2010 (the HST start date in B.C.) and for which ownership and possession transfer after March 31, 2013 (the HST end date in B.C.).
Builder disclosure requirements
Written agreements of purchase and sale of newly constructed or substantially renovated housing may be unclear about the taxes and rebates that are included in the sale price stated in the agreement, especially with the impending transition to the PST/GST.
For these reasons, builders will be required to make certain disclosures to purchasers and to the CRA. B.C. intends to impose penalties on builders for failing to comply with the disclosure requirements.
Courtesy of Larry J. Hanson C.A., Partner
Nordahl, Craig, Cummings & Gares Chartered Accountants
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