HST Transitional Rules Released for Residential Properties

Davis LLP Taxation Bulletin

February 24, 2012

April 1, 2013 is the start date for the reinstatement of GST+PST in B.C. The federal and provincial governments have announced that they will provide specific transitional rules. On Friday February 17, 2012, some transition rules were released, including rules dealing with residential real property. These will be of particular interest to builders and potential or actual buyers of new residential properties.

The key rules relating to new or substantially renovated residential property are as follows:

HST & Increased BC New Housing Rebate

  • New homes where construction is substantially complete before April 1, 2013 will continue to be subject to 12% HST, even if closing occurs after March 31, 2013.
  • The existing BC new housing rebate, which is limited to new homes with a value of up to $525,000, continues for any purchases of new homes where closing occurs on or before March 31, 2012.
  • The BC new housing rebate applies to new homes with a value of up to $850,000, for purchases from April 1, 2012 to March 31, 2013.
  • The increased BC new housing rebate will also apply to the purchase of a new secondary vacation or recreational home located outside of the Greater Vancouver and Capital Regional Districts
  • Builders are generally expected to credit purchasers the increased BC new housing rebate arising from the above changes where they have already agreed to credit the existing BC new housing rebate.

2% B.C. Transition Tax on Purchasers & B.C. Transition Rebate for Builders

  • A purchaser is required to pay a 2% B.C. Transition Tax on the purchase price, which includes the value of the land, where construction of a new home is at least 10% complete before April 1, 2013 and ownership and possession of that home transfers on or after April 1, 2013 and before April 1, 2015.
  • The price in a purchase and sale agreement must exclude the 2% B.C. Transition Tax.
  • A builder may claim a B.C. Transition Rebate to recover PST paid on materials, calculated according to a formula based on percentage of completion at April 1, 2013. A builder must satisfy certification requirements to claim this B.C. Transition Rebate.
  • Where construction commences on or after April 1, 2013 or is less than 10% complete on April 1, 2013, the purchaser is only required to pay 5% GST.

Builders Disclosure Requirements

  • Effective immediately, builders are subject to new disclosure requirements.
  • A builder is required to provide to the purchaser and the CRA a prescribed form with defined information at the time the statement of adjustments are “made”, where the purchase and sale agreement was entered into on or before February 17, 2012.
  • For purchase and sale agreements entered into after February 17, 2012 and before April 1, 2015, a builder must include in the agreement:

– a paragraph prepared by the Province that explains the application of some of these rules where ownership and possession transfer on or after April 1, 2013;

– a price that is exclusive of the 2% B.C. Transition Tax and any applicable builder’s B.C. Transition Rebate;

– whether the price is exclusive or inclusive of the 7% BC component of HST and the BC new housing rebate;

As above, the builder is required to provide to the purchaser and the CRA prescribed form at the time the statement of adjustments are made.

  • Builders that fail to meet disclosure requirements may be assessed a penalty of 1% of the purchase price to a maximum penalty of $10,000.

For further information, please contact Dennis Yee at 604-643-2959 or at dyee@davis.ca.