Writing New Home Contracts under the HST Transition Rules

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.

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