Writing New Home Contracts under the HST Transition Rules

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Together, but unheralded with the recent HST Transition Rules are the new contract disclosure requirements in Contracts of Purchase and Sale for real estate.

Generally the new tax regime can be briefly described as follows:

HST: (12% less rebates) will apply where construction AND possession is transferred PRIOR to April 1, 2013

Transition Tax: (GST (5%) less federal rebate plus 2% Provincial Transition Tax) will apply where construction starts prior to April 1, 2012, but completion occurs after April 1, 2013.

GST/PST: (GST (5%) less federal rebates) will apply after April 1, 2013 [until the next tax change :) ], PST will not apply to homes on land [note: mobile homes without land attract both GST and PST]

[see government info site here]

Builders of New (or substantially renovated) Housing MUST disclose the following:

  1. the total consideration (the Purchase Price, include all cash and trades)
  2. the amount of transition tax charged
  3. the degree of completion of the home as at April 1, 2013
  4. the amount of the BC transitional rebate to be claimed by the Builder.
Contracts cannot be inclusive of the Transition Tax (which applies where possession transfers after April 1, 2013) and must disclose that Transition Tax is in addition to the Purchase Price. Contracts can be inclusive or exclusive of HST however the Builder must disclose either way.
Contractual Language For Transition Tax Transactions
(note: this has been reworded from the governments suggested language to work with the Standard Contract of Purchase and Sale)
The Possession Date of this Property may transfer on or after April 1, 2013: therefore, the 7% provincial component of the HST and the new housing rebate for primary residences will generally no longer apply (the federal GST component will continue to apply); and, a B.C. transition tax of 2% may become payable and is NOT included in the Purchase Price; and, the builder may become eligible for an associated B.C. transition rebate.
On the Closing Date, the Builder shall provide a statutory declaration to the Purchaser certifying that the following information:
  1. the date that construction commenced.
  2. the total Purchase Price (including all cash and trades)
  3. the amount of transition tax charged to the Purchaser
  4. the degree of completion of the home as at April 1, 2013
  5. the amount of the BC transitional rebate to be claimed by the Builder.
 [note: there are special rules that apply to "double straddling transactions" where a contract of purchase and sale was entered into prior to November 18, 2009, these are not discussed here]

Proviso: This information here has not yet become law and is based on the discussion papers published by the Government of British Columbia. These rules may change as the legislation progresses through the BC legislature.

Peter Borszcz is a Real Estate Lawyer and Business Lawyer practicing in Kelowna, BC and a shareholder in the law firm of PIHL Law Corporation.

HST Transition Rules for Housing

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The Province announced the HST Transition rules on February 17, 2012 as the Province transitions back to the PST/ GST system on April 1, 2013.

Used Residential Homes (most resales) are, and remain, exempt from HST.

1. Under the current system, there is no additional rebate for new homes greater than $525,000 – Effective April 1, 2012, for homes completing prior to April 1, 2013, this rebate threshold has been increased to $850,000, meaning that the maximum rebate available (for homes worth 850k) is $42,500. This provincial portion HST rebate will also be available to secondary or vacation residences located outside the lower mainland.

Effective HST on Homes (Primary Residence)  - April 1 2012 to April 1 2013

Purchase Price Gross HST (12%) Rebate Available          NET Purchase Price
$100,000.00 $12,000.00 $6,800.00 $105,200.00
$150,000.00 $18,000.00 $10,200.00 $157,800.00
$200,000.00 $24,000.00 $13,600.00 $210,400.00
$250,000.00 $30,000.00 $17,000.00 $263,000.00
$300,000.00 $36,000.00 $20,400.00 $315,600.00
$350,000.00 $42,000.00 $23,800.00 $368,200.00
$400,000.00 $48,000.00 $23,150.00 $424,850.00
$450,000.00 $54,000.00 $22,500.00 $481,500.00
$500,000.00 $60,000.00 $25,000.00 $535,000.00
$550,000.00 $66,000.00 $27,500.00 $588,500.00
$600,000.00 $72,000.00 $30,000.00 $642,000.00
$650,000.00 $78,000.00 $32,500.00 $695,500.00
$700,000.00 $84,000.00 $35,000.00 $749,000.00
$750,000.00 $90,000.00 $37,500.00 $802,500.00
$800,000.00 $96,000.00 $40,000.00 $856,000.00
$850,000.00 $102,000.00 $42,500.00 $909,500.00
$900,000.00 $108,000.00 $42,500.00 $965,500.00
$950,000.00 $114,000.00 $42,500.00 $1,021,500.00
$1,000,000.00 $120,000.00 $42,500.00 $1,077,500.00

2. For new homes where construction begins before April 1, 2013, BUT where possession transfers after April 1, 2013, neither HST nor PST will be payable, but rather purchasers will pay a temporary, transitional provincial tax of 2% per cent on the full house price in addition to the GST payable.

3. Special Transition Tax Rebates will be available to real estate developers and home builders who commence a home prior to April 1, 2013 but where it is sold after April 1, 2013 to prevent double taxation based on the extent of completion on April 1, 2013.

% complete April 1, 2013 Transition Tax Rebate to Builder Rebate (Ex: 500k Home) TTax Paid by Home Buyer (500k home)
<10% N/A $0 10000
10-25% 1.50% 7500 10000
25%-50% 1.00% 5000 10000
50%-75% 0.50% 2500 10000
75%-90% 0.20% 1000 10000
>90% 0.00% 0 10000

For a complete breakdown under 3 different tax systems, check out my post here.

Realtors and Developers: please be advised there are special contract rules with respect to the enhanced HST Rebate and Transition Tax, find more info at my post here.

Proviso: This information here has not yet become law and is based on the discussion papers published by the Government of British Columbia. These rules may change as the legislation progresses through the BC legislature.

Peter Borszcz is a Real Estate Lawyer and Business Lawyer practicing in Kelowna, BC and a shareholder in the law firm of PIHL Law Corporation.

The provincial government press release can be found here. The federal government rules can be found here.

Land Tax Deferment Act Agreements

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Certain qualifying property owners can enter into an agreement with the Province of British Columbia to defer the payment of property taxes on the owner’s primary residence.   The program is primarily directed toward seniors and parents of dependent children who are facing financial hardship to assist them to stay in their family homes.

The general criteria are as follows:

  1. Be 55 years or older, a person with a disability (or a surviving spouse of one of these persons)
  2. Be a Canadian citizen or landed immigrant and British Columbia resident
  3. Equity of at least 25% in your home (note: based on Assessment Value) and have a current property insurance policy

A second category, for families with children, was introduced in 2010, and you must:

  1. Be supporting a dependent child
  2. Be a Canadian citizen or landed immigrant and British Columbia resident
  3. Equity of at least 15% in your home (note: based on Assessment Value) and have a current property insurance policy

The following properties are examples of residences that are ineligible:

  1. Homes owned by a corporation
  2. Homes on first nations lands (for example: Westbank First Nations)
  3. Second residences or vacation residences
  4. Homes owned “in trust” by Executors or Trustees (for example after the home owner has died)

Where there are two or more joint owners, only one owner needs to meet all the qualification criteria.

After receipt of your current tax notice, apply by filling out the government form.

Upon accepting your application, the government places a Land Tax Deferment Act Charge on title and the property owner’s property taxes (but not utility charges) are deferred and no dealings (including sales or refinances) can happen until the property owner removes the Land Tax Deferment Charge (and repays the property tax plus interest and fees owing).

Importantly, while the charge is on title, re-mortgaging or re-financing the property (where a new registration is required on title) with a Land Tax Deferment Act Charge cannot occur (as the Government will not grant priority to the bank mortgage). Property owners are well advised to do any refinancing prior to entering into a Land Tax Deferment agreement. If you are re-financing after placement of a Land Tax Deferment Act Charge, please ensure that you have sufficient proceeds on hand to payout the all deferred property taxes, interest, and application and renewal fees.

You can payback all deferred property taxes, interest, and application and renewal fees at any time without penalty. When you sell your home, it must be paid back in full and this is one of the charges that your lawyer will arrange to payout on conveyance.

Peter Borszcz is a Real Estate Lawyer and Business Lawyer practicing in Kelowna, BC and a shareholder in the law firm of PIHL Law Corporation.

Property Taxes and Home Owners Grants

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Property taxes are adjusted by your lawyer when a property is transferred.  Property taxes are charged to the property (as opposed to the owner), therefore if there is a property tax bill which remains unpaid from a former owner, the current owner is liable to pay it.

Each year property owners are liable to pay property taxes to the “taxation authority” appointed by the government of British Columbia, which in urban areas is the local municipality and in rural areas will be the Ministry of Finance.

Property taxes are levied against residential property based on the Land value and the Improvement value, as published in January each year by BC Assessment, which are based on the data collect up until the previous July. Your “Assessed Value” is often used by bankers and realtors to assist them in determining the value of your property; however it is only one piece of information.  If you feel that your BC Assessment value to too high, and you feel your property taxes are too high as a result, you may wish to File a Notice of Complaint with the local BC Assessment Office.

Property Tax Notices are mailed out by your taxation authority during the first week of May.  These notices are sent out to the property address noted on your land title. Even, if your address is incorrect on title and therefore you do not receive your Property Tax Notice, you are still liable to pay your Property Taxes.  If you need to change your address on title, contact your lawyer.

Taxes MUST be paid before the deadline for payment in your area or a substantial penalty will be assessed.

Municipality Deadline for Payment* Penalty for Late Payment*
City of Kelowna First working day after July 1.(July 2, 2012) 5% immediately, additional 5% over 30 days
District of West Kelowna July 7th, 2012 (set every year) 10% immediately
Westbank First Nation [TBA] [TBA]
District of Lake Country First working day after July 1.(July 2, 2012) 10% immediately
District of Peachland First working day after July 1.(July 2, 2012) 10% immediatley
Rural Areas First working day after July 1.(July 2, 2012) 5% immediately, additional 5% over 90 days

*deadline and penalties may change from time to time.

Home Owners Grant

Most Home Owners are eligible for a home owners grant on their primary residence if they are a BC resident and they are the owner or occupant of an eligible residence and live in it as their principal residence at the time they submit the signed application form that is found on the bottom of the tax notice.

On freehold lands in the Okanagan (including the NRAH Benefit), the basic grant available is $770 and the additional grant available is $1070.

On Westbank First Nations lands (the NRAH Benefit does not apply), the basic grant available is $570 and the additional grant available is $870.

Important Note: Even if you cannot pay your property taxes in full on the deadline, it is important to claim your Home Owners Grant as the penalty you incur will be reduced.

If you are unable to pay your taxes, government assistance may be available if you are a senior or you are supporting a dependant child.

Peter Borszcz is a Real Estate Lawyer and Business Lawyer practicing in Kelowna, BC and a shareholder in the law firm of PIHL Law Corporation.

Permits Under Part 26 of the Local Government Act

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I commonly get calls from home buyers and Realtors on what the legal notation “This Title May be Affected by a Permit under Part 26 of the Local Government Act” (previously Part 29 of the Municipal Act) means.

Under s.927 of the Local Government Act, a local government (municipality or regional district) is required to file a Part 26 Notice on a Land Title where:

  1. a Development Permit has been issued
  2. a Temporary Use Permit has been issued
  3. a Development Variance Permit has been issued

This is simply notice that one of these permits has been issued by the governing municipality on the subject property. Where residential property is fully complete (and an occupancy certificate has been issued) and no renovations or change of use is contemplated, these notices will likely not materially effect a Buyer’s decision.

However, where real estate development or changes in use of a property are contemplated (ie; applying for redevelopment or increased density), these filings should be reviewed. However, the Land Title Office filing does not contain any further detail about the nature and terms of the permit. Therefore, if a developer needs to obtain this information they will need to inquire with the office of the local government (ie; City Hall).

Peter Borszcz is a Real Estate Lawyer and Business Lawyer practicing in Kelowna, BC and a shareholder in the law firm of PIHL Law Corporation.

WFN – ARIA LEASE FAQ

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Aria is a development of multifamily condominium apartments which are located between the 8th and the 9th hole of the Two Eagles golf course in Westbank, BC (Development Website). Homeowners are issued a share in the Lessee Corp. and granted a leasehold interest.

  1. What is the term?  Unless earlier terminated, the sublease expires: April 24, 2105. Upon termination of the lease, your leasehold interest will expire and you must remove all belongings and leave the premises in good condition. A lease may be terminated prior to the end of term in the event of an uncured default of either the sublease or the head-lease.
  2. Is the lease entirely prepaid?  PARTIALLY- There is 1) the initial capital cost (the purchase price) is payable plus 2) ongoing monthly rent (which was initially $140/mo) plus 3) ongoing common costs (similar to strata fees).
  3. Other financial obligations under the lease? Although the rent is pre-paid however, there are additional components which you are responsible for paying on a monthly ongoing basis being such items as: Property Taxes, Charges and Utilities are payable to the WFN and Home Owners Association dues.
  4. Does the lease allow the owner to assign (sell) to a third party? YES – but, prior to assignment (sale) to any third party a certificate of good standing will have to be obtained and a transfer fee is payable by the Seller (equal to 0.4% of the sale price). The owner, prior to any assignment, will also have to pay all arrears owing to the landlord or home owners association. The Assignment must be registered with WFN.
  5. Does the lease permit the owner to obtain a mortgage from a bank? The lease will permit the mortgaging of the Tenant’s interest without consent of the Landlord. The lease also contains those specific provisions which are required by the CMHC to provide insurance to lenders.
  6. Does the lease restrict the use of the property?  YES – Your use of your property is restricted to residential uses (including home office use). Illegal activities or activities creating a nuisance are prohibited. The development contains an express prohibition of “noise which would create a disruption to” your neighbours. As the property is located on a golf course, the lease expressly excludes liability of the band or landlord or the golf course operator from damage caused by errant golf balls.
  7. Are there unique insurance requirements? YES – the Tenant must obtain a Comprehensive General Liability Insurance policy in the amount of $2,000,000 and maintain an All Risks policy.
  8. Are there provisions for a homeowners association?  Operating similar to a Strata, The Home Owners Association or Sub-landlord may levy fees and create bylaws and rules and fines may be imposed if you fail to pay your homeowner association fees or breach those bylaws or rules. The Bylaws are incorporated by reference into the lease and should be reviewed prior to subject removal.

(this commentary is based on the Sublease #SG03297 and Lease SG00715 (as amended) on January 7, 2012 and is provided as information only and is not legal advice for any specific transaction, Buyers should obtain legal advice from a kelowna lawyer at the time of the offer to sublease (purchase))

WFN – SAGE CREEK LEASE FAQ

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Sage Creek is a development of modular homes which is located adjacent to the Two Eagles golf course in Westbank, BC (Development Website). Homeowners are issued a share in the Lessee Corp. and granted a leasehold interest.

  1. What is the term?  Unless earlier terminated, the sublease expires: April 24, 2105. Upon termination of the lease, your leasehold interest will expire and you must remove all belongings and leave the premises in good condition. A lease may be terminated prior to the end of term in the event of an uncured default of either the sublease or the head-lease.
  2. Is the lease entirely prepaid?  PARTIALLY- Much like the purchase of a modular home in a park, there is 1) the initial capital cost (the purchase price) plus 2) monthly rent (similar to pad rent, which was initial $350/mo) plus 3) common costs (similar to strata fees). Increases the monthly rent are adjusted in the same manner as pad rent adjustments in manufactured home parks.
  3. Other financial obligations under the lease? There are additional components which you are responsible for paying on a monthly ongoing basis being such items as: Property Taxes, Charges and Utilities and other service fees payable to the WFN and Home Owners Association.
  4. Does the lease allow the owner to assign (sell) to a third party? YES – but, prior to assignment (sale) to any third party a certificate of good standing will have to be obtained and a transfer fee may be payable ($500). The Basic Rent (pad rent) will be adjusted on assignment to be equal to the highest Basic Rent (pad rent) payable in the development. The Assignment must be registered with WFN. If the owner is a holding corporation a change of control (share sale) of this holding corporation is deemed to be an assignment.
  5. Does the lease permit the owner to obtain a mortgage from a bank? Yes – on the condition that the mortgage is registered in the WFN Registry, the lease will permit the mortgaging of the Tenant’s interest.
  6. Does the lease restrict the use of the property?  YES – Your use of your property is restricted to residential uses (including home office use). Illegal activities or activities creating a nuisance are prohibited. The development is marketed toward a retirement lifestyle and therefore contains an express prohibition of “noise which would create a disruption to” your neighbours.  Exterior Alterations (additions) which would reduce the spacing distance between neighbouring buildings are expressly prohibited (without consent, which is unlikely to be obtained).
  7. Are there unique insurance requirements? YES – the Tenant must obtain a Comprehensive General Liability Insurance policy in the amount of $2,000,000 and maintain an All Risks policy.
  8. Are there provisions for a homeowners association? Operating similar to a Strata, The Home Owners Association or Sub-landlord may levy fees and create bylaws and rules and fines may be imposed if you fail to pay your homeowner association fees or breach those bylaws or rules. The Bylaws are incorporated by reference into the lease and should be reviewed prior to subject removal.

(this commentary is based on the Sublease #501528 and Lease SG0888 on January 7, 2012 and is provided as information only and is not legal advice for any specific transaction, Buyers should obtain legal advice from a kelowna lawyer at the time of the offer to sublease (purchase))