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Business Law Notes |
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THE IMPLEMENTATION OF HST ON NEW HOUSINGAs you are no doubt aware, the HST regime in Ontario will take effect at midnight on June 30, 2010. One of the industries most affected will be house building and there are complexities involved in how HST applies to sales. I have provided, in chart form attached as Schedule "A", some details of how the HST impacts on freehold and condominium housing sales. The date of the Agreement of Purchase and Sale becomes very relevant as does the date of possession and title transfer in determining the tax rate. In addition, there is the transitional tax adjustment and the RST Transitional New Housing Rebate which applies to housing under construction on the effective date. To comply with the new regime, builders must take a snapshot of each unit at the close of business on June 30, 2010 to determine the percentage of completion and the fair market valuation. Attached as Schedule "B" are examples of how the rebates are calculated under different scenarios. Attached as Schedule "C" is a table produced by PRICEWATERHOUSE COOPERS showing the effect of HST on New Housing Prices. Unfortunately, even though the implementation date is fast approaching, the regulations and the forms have yet to be published so there is a certain amount of ambiguity. I would refer readers to the main publications released to date on the CRA and Provincial government websites, which should be reviewed in depth:
GST/HST Notices - Notice 244 - December 2009 - Harmonized Sales Tax for Ontario – Questions and Answers on Housing Rebates and Transitional Rules for Housing and Other Real Property Situated in Ontario Helping Homebuyers and the Housing Industry with an Enhanced New Housing Rebate, a New Rental Housing Rebate and Transitional Rules Single Sales Tax (Harmonized Sales Tax) Information Notice 2 - June 18, 2009 http://www.rev.gov.on.ca/en/notices/hst/02.html Additional Information for Homebuyers and the Housing Industry under...Information Notice No 4 - November 2009 General Transitional Rules for Ontario HST Harmonized Sales Tax Information Notice 3 October 2009 http://www.rev.gov.on.ca/en/notices/hst/03.html
SCHEDULE "A"
NOTES: 1. Provincial certificate – As a condition of obtaining an RST transitional new housing rebate, a builder would be required to attach a valid provincial certificate – a letter of good standing - to their first rebate application and file the application with the CRA. The letter of good standing would be obtained from the Ontario Ministry of Revenue, would be issued where the builder has no outstanding provincial debts and would generally be valid for one year from the date of issuance unless revoked by the province. The letter of good standing would be used by the CRA to process subsequent RST transitional new housing rebate applications filed by the builder provided that the letter of good standing remains valid and has not been revoked. The province would notify the CRA and the builder if it revokes a letter of good standing. Where a letter of good standing is no longer valid, a builder would be required to attach a new letter of good standing to any subsequent rebate application filed with the CRA. 2. Transitional tax adjustment for a house (other than a condominium complex or a residential condominium unit)
The transitional tax adjustment would be calculated on the consideration payable for the grandparented sale of the housing, which would exclude the GST payable and any new housing rebates. For purposes of calculating the transitional tax adjustment, the consideration would be deemed to be equal to the fair market value where the consideration payable for the housing is less than the fair market value of the housing on July 1, 2010, as if the housing had been substantially completed on that date. The adjustment is payable in the next reporting period and must be reasonably calculated. Can be based on progress billings. The cost is for construction and excludes land cost and soft costs. 3. The RST transitional new housing rebate would be calculated as follows:
The estimated RST embedded in the housing would be calculated by choosing one of the following two methods:
For the purchaser to be eligible to claim this rebate, the construction or substantial renovation of the house must be at least 10% complete as of July 1, 2010 and the builder must certify the degree of completion of the construction or substantial renovation as of July 1, 2010. The rebate application for the RST transitional new housing rebate will be available on the CRA Web site by July 1, 2010.
© Morrison Brown Sosnovitch LLP, 2010. All rights reserved.
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