March 5, 2012

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On February 17, 2012, Finance Minster Kevin Falcon announced the transitional rules for returning to the PST.  This announcement comes almost 7 months after British Columbians voted to extinguish the HST in a provincial referendum.

The transition rules for newly built homes are much anticipated, as homebuyers and developers have been left to speculate about the timing and method of transition back to the PST.

Transition Back to PST

HST will continue to apply to the sales of real property where ownership and possession occur prior to April 1, 2013.  After March 31, 2013, only GST will apply to the sale of real property and PST will generally not be applicable.

Enhanced HST New Housing Rebate

Currently, BC provides for a new housing rebate in respect of the PST component of the HST.  This amount is based on 71.43% of the provincial component of the HST up to maximum of $26,250 for new homes.  The maximum rebate is based on a threshold of $525,000 for a new home.

Where HST becomes payable on or after April 1, 2012 and before April 1, 2013, the new housing rebate threshold will be increased from $525,000 to $850,000.  Therefore, the maximum amount of the rebate will increase from $26,500 to $42,500. 

Generally HST becomes payable on the earlier of the day on which ownership is transferred to the recipient and the day on which possession of the property is transferred to the recipient.

The enhanced BC new housing rebate will be subject to the same eligibility conditions as the existing new housing rebate.  The purchaser will be entitled to receive the enhanced rebate by either filing a rebate application directly with the Canada Revenue Agency (“CRA”) or by the builder paying or crediting the enhanced rebate amount at the time of purchase (in which case the builder files the rebate application). 

Further, 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.

Temporary Transition Tax and Rebate

In respect of sales of new or substantially renovated homes on or after April 1, 2013 where HST will not be applicable, BC intends to impose a new temporary 2% tax when the following conditions apply:

  1.         HST does not apply to the sale;
  2.         the construction or substantial renovation of the home is 10% or more completed as of April 1, 2013; and
  3. the ownership and possession of the new home transfers, or a deemed sale of the new housing occurs (i.e., a self-supply), before April 1, 2015. 

This transitional tax is intended to capture any tax leakage where a builder has claimed a 12% HST credit on costs of construction before April 1, 2013 and the fact that only 5% GST will be charged on the sale.  There will be special timing rules that will apply to residential condominium units.

We understand that there will also be a BC transition tax rebate, which will be based on the total consideration payable for the housing and the degree of completion on April 1, 2013.  

Double straddling transactions

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 BC) and for which ownership and possession transfer after March 31, 2013. 

  1. Grandparented Sales of New Housing

There are special transitional rules in respect of sales of new homes that were not originally subject to HST.  Specifically, if a contract was entered into on or before November 18, 2009 or the housing construction began before July 1, 2010 (the start date of HST in BC) and for which ownership and possession transfer after March 31, 2013, the special transitional rules will apply. 

Effective April 1, 2013, a new 2% transition tax will apply to the sales of these homes if the agreement of purchase and sale was entered into on or before November 18, 2009 and both ownership and possession transfer under the agreement  after March 31, 2013. 

The contracted purchase price will be deemed to be inclusive of a 2% transition tax.  Therefore, the transition tax equals 2/102 (approximately 1.9608%) of the consideration established for GST purposes at the time the agreement was entered into. 

Builders will also be eligible for a new BC transition rebate on the consideration established for GST divided by 1.02 (approximately 98.04%) to take into account the transitional tax payable by the purchaser.  The rebate will be adjusted to exclude any PST new transitional rebate that the builder claimed on the introduction of the HST.

  1. Non-grandparented Sales of New Housing

A PST transitional new housing rebate was available on sales of newly constructed or substantially renovated homes where:

  1.         a written agreement was entered into after November 18, 2009;
  2.         10% or more of the construction was completed by July 1, 2010; and
  3. the sale was subject to the 12% HST.

Effective April 1, 2013, the 5% GST will be applicable on the sale of the new home.  Therefore, the PST transitional new housing rebate will not be available for sales of non-grandparented housing where both ownership and possession transfer on or after April 1, 2013. 

Further, the 2% transition tax will apply to these non-grandparented homes where:

  1.         construction began before July 1, 2010; and
  2.         both ownership and possession of the housing transfer on or after April 1, 2013.

The transition tax will generally be payable by the purchaser and will be calculated on the total consideration for the new housing.

Builder Disclosure Requirement for the Transition Period

Builders will be required to make certain disclosures to purchasers and to the CRA.  The extent and nature of the disclosure will depend on whether the purchase and sale agreement is entered into:

  1.         Before February 18, 2012, when the transition tax applies; or
  2.         After February 1, 2012, and before April 1, 2015.

For more information or clarification, please contact your Smythe Ratcliffe tax advisor.

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