The British Columbia Minister of Finance (the "Minister") has started to issue the rules that will guide the Province's transition back to a combined Goods and Services Tax and Provincial Sales Tax ("GST/PST") system. As an initial step, the Minister has set April 1, 2013 as the date of the transition and has published a set of rules governing the taxation of newly constructed homes.
These initial transitional rules are meant to minimize the potential disruption of the construction industry and ensure new homes purchased after April 1, 2013 are taxed consistently whether they were built entirely under the Harmonized Sales Tax ("HST"), entirely under the PST or partly under the HST and partly under the PST. Under this set of rules, the Province has enhanced the new home rebate available to purchasers, implemented a transitional housing tax and imposed additional disclosure requirements on builders.
In addition to these transition rules for new homes, described more fully below, detailed PST transition rules for specific types of transactions, including goods brought, sent or delivered into British Columbia and goods used in the improvement of real property, will soon be made available by the Minister.
General Transition Rules – Housing
In general, a combined 12% GST/PST will replace the 12% HST on goods or services that are taxed on or after April 1, 2013. Certain goods and services will, however, become exempt from the 7% PST after the transition occurs and will only be subject to 5% GST. These goods and services, which were exempt from PST prior to the implementation of the HST, include new homes, real estate commissions, moving services and home renovation services. Due to the nature of new home sales and the long periods involved in home construction, the Province has implemented rules that will help maintain tax fairness during the transition.
New Housing Rebate
These transitional rules include changes to the Province's New Housing Rebate program. Currently, purchasers of new or substantially renovated homes ("new homes"), which are subject to the HST, receive a rebate of 71.43 percent of the provincial component of the HST paid, up to a maximum of $26,250. Under the transitional rules, purchasers will be eligible to receive the same percentage of HST up to a maximum of $42,500. This enhanced rebate will be available for taxes paid between April 1, 2012 and April 1, 2013. Special rules apply if the new home under consideration is a secondary residence, vacation home, rental home or if the transfer of the home is considered the self-supply of a principal residence.
As part of these changes a date has also been set for the termination of the New Housing Rebate program. In order to receive an existing or enhanced New Housing Rebate, applications must be completed prior to April 1, 2017.
Transitional Housing Tax
The Province has also announced a two percent transition tax on the sale of new homes after April 1, 2013. The transition tax will apply if HST does not apply, the home is ten percent or more completed as of April 1, 2013 and ownership or possession occurs (or self-supply is deemed to have occurred) before April 1, 2015.
To offset this transitional tax and to prevent double taxation of the home buyer, a transitional rebate will also be available to builders of newly constructed homes. This rebate will be based on the portion of the construction that has been completed as of April 1, 2013 and the overall consideration paid for the home.
Disclosure Requirements for Builders
In order to ensure the modified taxes and rebates are clearly described in agreements of purchase and sale for new homes, builders will be required to make certain disclosures to purchasers and to the Canada Revenue Agency. These requirements have already been implemented and will apply to any agreement of purchase and sale entered into after February 17, 2012 and before April 1, 2015. Compliance with these disclosure requirements is mandatory and penalties will be imposed on builders who fail to provide adequate disclosure.
Fasken Martineau Dumoulin LLP has extensive experience in dealing with Provincial Tax matters and is available to assist your business with its transition back to the PST or any other tax matter where assistance may be required.