April 1 Transition Tax on New Home Sales Reminder

The GST at 5% would apply to a taxable sale of real property in British Columbia where, under a written agreement of purchase and sale, tax becomes payable after March 31, 2013.

In addition, the transition tax will apply (in addition to 5% GST) 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 before April 1, 2015.

First Time Home Buyers: Special Programs

I must admit, I love watching the HGTV show “Property Virgins“, and seeing the excitement of first time home buyers fulfil their dreams of home ownership is one of the best things about my job.

In British Columbia, real estate prices (compared with much of Canada) are high relative to average income, which increases barriers to first time home owners. In the Okanagan, local professionals like to call this the “sunshine tax” (although “four season paradise tax” would be more appropriate). Thankfully there are some very helpful programs that First Time Home Buyers can use to assist them with their first home purchase.

A. Property Transfer Tax Exemption for First Time Home Buyers

This program exempts First Time Home Buyers from paying BC Property Transfer Tax.

To Qualify for the PTT Exemption a First Time Home Buyer must:

  1. Be a Canadian Citizen or Permanent Resident
  2. Have lived in BC for 12 consecutive months OR filed income tax returns for at least 2 of the last 6 years in BC
  3. Never have owed an interest in a principal residence anywhere in the world; and
  4. Never have previously received a First Time Home Buyers Exemption
If you qualify, on homes valued up to $475,000, a First Time Home Buyer will be exempt from paying Property Transfer Tax (a savings of $7,500 in PTT). The tax exemption diminishes on higher priced homes and is not available on any homes priced over $500,000.
You apply for the exemption at the time of conveyance, and often your lawyer will complete the PTT Return and Exemption application as part of the closing documentation.  There are severe penalties for a false declaration.

B. RRSP First Time Home Buyers Plan

This program allows First Time Home Buyers to “loan themselves” previously claimed RRSP contributions tax free to assist in the purchase of a home.

To Qualify for the RRSP First Time Home Buyers Plan:

  1. You must have entered into a binding agreement to build or buy a home
  2. You intend to occupy your home as a principal residence and be a resident of Canada
  3. You are a first time home buyer
  4. You must not have a “repayable Home Buyers Plan” balance on your tax return
This program will allow you to withdraw up to $25,000 from your RRSP to assist in your home purchase. This is withdrawn at your financial institution immediately prior to closing and you complete form T1036.

C. First Time Buyers New Home Bonus

This is a time limited rebate (introduced with the enhanced HST rebates) for First Time Home Buyers buying new homes (until March 31, 2013 only), to qualify:

  1. You must be eligible for an HST rebate on a new home purchased after April 1, 2012 and Completion must occur before Mar 31, 2013 (ie; transition tax does not apply)
  2. You (and the if a couple, both persons) must be a First Time Home Buyers and BC Residents
  3. The home must be the Buyers Primary Residence
  4. Your Family Income must be less than $150,000 for full rebate (note : the rebate phases out to $0 for income over $200,000)

After closing you will apply to the BC Government which will grant a rebate of 5% of the purchase price of the home (if under 200k) or $10,000 (whichever is greater). The rebate will be a cheque mailed directly out to claimants after the application has been approved.

The best place for First Time Home Buyers to start their new home search is by getting a clear idea of the process, check out my BUYERS PAGE.

Peter Borszcz is a Business and Real Estate Lawyer practising in Kelowna, British Columbia and a shareholder of Pihl Law Corporation.

Comparing HST and Transition Tax for New Housing

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. For an overview see my post here.

If completion of New Residential Housing occurs prior April 1, 2013, the HST system with the new enhanced rebate will apply:

For Primary Residences (with federal rebate):

Purchase Price Gross HST (12%) Rebate Available Purchase Price (incl HST)
$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

For Secondary Residences (with no federal rebate):

Purchase Price Gross HST (12%) Rebate Available Purchase Price (incl HST)
$100,000.00 $12,000.00 $5,000.00 $107,000.00
$150,000.00 $18,000.00 $7,500.00 $160,500.00
$200,000.00 $24,000.00 $10,000.00 $214,000.00
$250,000.00 $30,000.00 $12,500.00 $267,500.00
$300,000.00 $36,000.00 $15,000.00 $321,000.00
$350,000.00 $42,000.00 $17,500.00 $374,500.00
$400,000.00 $48,000.00 $20,000.00 $428,000.00
$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

Where construction starts prior to April 1, 2013 but completion occurs after April 1, 2013, a Transition Tax will apply in addition to the federal GST component (with principal residence rebate):

Purchase Price GST (5%) Transition Tax (2%) Purchase Price (incl GST/TT)
$100,000.00 $3,200.00 $2,000.00 $105,200.00
$150,000.00 $4,800.00 $3,000.00 $157,800.00
$200,000.00 $6,400.00 $4,000.00 $210,400.00
$250,000.00 $8,000.00 $5,000.00 $263,000.00
$300,000.00 $9,600.00 $6,000.00 $315,600.00
$350,000.00 $11,200.00 $7,000.00 $368,200.00
$400,000.00 $16,850.00 $8,000.00 $424,850.00
$450,000.00 $22,500.00 $9,000.00 $481,500.00
$500,000.00 $25,000.00 $10,000.00 $535,000.00
$550,000.00 $27,500.00 $11,000.00 $588,500.00
$600,000.00 $30,000.00 $12,000.00 $642,000.00
$650,000.00 $32,500.00 $13,000.00 $695,500.00
$700,000.00 $35,000.00 $14,000.00 $749,000.00
$750,000.00 $37,500.00 $15,000.00 $802,500.00
$800,000.00 $40,000.00 $16,000.00 $856,000.00
$850,000.00 $42,500.00 $17,000.00 $909,500.00
$900,000.00 $45,000.00 $18,000.00 $963,000.00
$950,000.00 $47,500.00 $19,000.00 $1,016,500.00
$1,000,000.00 $50,000.00 $20,000.00 $1,070,000.00

If construction (on a principal residence) starts after April 1, 2013 (GST only applies, but assumed the Purchase Price is increased by 2% due to embedded PST):

Purchase Price GST (5%) PST Purchase Price (incl GST)
$100,000.00 $3,200.00 $0.00 $103,200.00
$150,000.00 $4,800.00 $0.00 $154,800.00
$200,000.00 $6,400.00 $0.00 $206,400.00
$250,000.00 $8,000.00 $0.00 $258,000.00
$300,000.00 $9,600.00 $0.00 $309,600.00
$350,000.00 $11,200.00 $0.00 $361,200.00
$400,000.00 $16,850.00 $0.00 $416,850.00
$450,000.00 $22,500.00 $0.00 $472,500.00
$500,000.00 $25,000.00 $0.00 $525,000.00
$550,000.00 $27,500.00 $0.00 $577,500.00
$600,000.00 $30,000.00 $0.00 $630,000.00
$650,000.00 $32,500.00 $0.00 $682,500.00
$700,000.00 $35,000.00 $0.00 $735,000.00
$750,000.00 $37,500.00 $0.00 $787,500.00
$800,000.00 $40,000.00 $0.00 $840,000.00
$850,000.00 $42,500.00 $0.00 $892,500.00
$900,000.00 $45,000.00 $0.00 $945,000.00
$950,000.00 $47,500.00 $0.00 $997,500.00
$1,000,000.00 $50,000.00 $0.00 $1,050,000.00

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.

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.

HST Transition Rules for Housing

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.

HST – Key Points for Realtors

IMPORTANT! Given the recent announcement of the Province, this will only apply under April 1, 2012, after April 1, 2012, the Transition Rules will apply until April 1, 2013.
HST will be chargeable on every supply of real property (including mobile homes and floating homes) in Canada. However, Used Residential Housing is an Exempt Supply and therefore resale homes will not be subject to HST (they are not subject to GST either).
Generally the Vendor is liable to the government to collect and remit the HST; However in certain cases the Buyer must remit where either a) the Seller is a Non-Resident or b) the Buyer is a GST/HST registrant.
HST is due and payable on all NEW residential homes with a COMPLETION DATE on or after July 1, 2010 unless the transaction is grandfathered.  A “grandfathered” transaction is one where the contract of purchase and sale was signed prior to November 18, 2009. However, in the event the “grandfathered” contract is assigned to a third party, special rules will determine whether HST is payable. The rules are in place to prevent fraudulent “grandfathering” transactions.
The HST rebate threshold has been increased to include home valued up to $525,000. The government is states that additional rebate makes the purchase of homes (with a value of less than 525k) before of after July 1, 2010, tax neutral. Buyers considering the purchase of homes below the 525k threshold should not purchase prior to July 1, 2010 simply to get a tax break.
The HST rebate threshold also applies to Rental Housing. Therefore investors looking at the condo market to place in the rental pool should be encouraged that the new HST will not effect their purchasing power.
The important take home message is that HST will not be the hyped “big bust” for the BC real estate industry. HST will have very little effect on the majority of BC residential home sales.