Elimination of the HST in BC: Transitional rules for real property

If you are in British Columbia you are probably aware that on the 31st of May 2012, the legislative assembly of BC passed Bill 54 to re-implement the provincial sales tax (PST) in the province, alongside the goods and services tax (GST), ridding the province of the much-criticized harmonized sales tax (HST).

Bill 56,was put introduced so taxes on property transactions will remain consistent through the transition from HST, back to GST and PST. Generally, the application of the transitional rules will be based on the time at which tax becomes payable in respect of the sale. GST—at 5%—will apply where the tax becomes payable after March 31, 2013. If the tax becomes payable before April 1, 2013, the 12% HST applies to the sale. The GST/HST will become payable on the day that ownership is transferred, or the day possession of the property is transferred under the agreement of sale, whichever occurs first.

The rules above also pertain to sales of ‘new housing’; the taxability of the transaction will be assessed by the same dates and tax rates as above. There is, however a rebate available for new housing and housing that has been substantially renovated.

Where the construction or substantial renovation of housing is more than 10% completed before April 1, 2013, the builder would have claimed income tax credits (ITCs) in respect of the HST paid on the housing materials integrated into the house thus far. Since the HST will not apply to a sale of the housing where tax becomes payable after March 2013, the B.C. transition tax, imposed at 2% of the price of the house, will apply to the sale.

The rebate will be based on either the total consideration payable for the housing, excluding the GST and rebates, or for the interest in the housing and the degree of completion of the housing at three key points in time: immediately before April 1, 2013, immediately before July 1, 2010; and on the date where tax becomes payable on the new housing.

The total consideration payable for the housing is the sum of the value of the consideration payable for the new housing as determined for GST/HST purposes, plus the sum of the value of the consideration for any taxable interest (i.e. an option to purchase the housing) payable by the recipient to the supplier in respect of the new housing.

Things of Note

* To determine the degree of completion of the construction or substantial renovation in issue, the CRA expects compliance with GST/HST Info Sheet GI-105, How to Determine the Percentage of Completion for Purposes of the Provincial Transitional New Housing Rebates and the Transitional Tax Adjustment in Ontario and British Columbia.

* For builders who are required to self-supply and pay the B.C. transition tax, the rebate will be based on the fair market value of the housing at the time of the supply.

For more information, see the CRA’s GST/HST Notice No. 276.