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BC'S HST & REAL ESTATE


BC's HST and Real Estate

November 19 update: Transitional rules for new housing have been released by the provincial government today. The Province is proposing to increase the previously announced threshold for the B.C. HST new housing rebate from $400,000 to $525,000. For pre-sales, any home sold (meaning contract entered into) before midnight on November 18, 2009 is grandparented and any home sold on or after November 19, 2009 are subject to HST transitional rules. HST would not apply to sales of newly constructed or substantially renovated residential units in residential condominium buildings that are taxable under the GST where, under a written agreement of purchase and sale, ownership or possession of the home is transferred before July 2010.

October 14 update: General Transition rules have been announced by the provincial government, although the general rules contain little information regarding real estate.

On July 23, 2009, the B.C. government announced that it has reached an agreement with the federal government to combine the 7% B.C. PST with the 5% GST to create a single harmonized sales tax (HST). The new tax will come into effect on July 1, 2010. This article focuses on the effect of the HST on the real estate industry.

General

  • The HST rate will be 12% (5% federal + 7% provincial)
  • The PST will be eliminated completely
  • There will be a partial rebate of the provincial portion of the HST of up to $20,000 on new housing
  • Input tax credits will be available of HST in the same manner as under the current GST

New Housing

Currently under the GST, new housing is taxed while used housing is not. No housing sales are directly taxed under the PST, although the B.C. Ministry of Finance states that there is currently an average of 2% PST embedded in the cost of new homes from PST charges on construction materials. Under the HST, there would be no embedded tax but the full 12% HST would apply to new housing.

An HST partial rebate on new housing will be provided to purchasers in an amount equal to 5% of the purchase price up to a maximum rebate of $20,000. The Ministry's rationale is that because purchasers currently pay 2% embedded PST, the rebate would eliminate any tax increase on new housing sold for a purchase price of up to $400,000. The embedded PST aside, homes under $400,000 will be subject to a tax 2% higher than under the current system. Homes over $400,000 will be taxed at a rate 7% higher than under the current system, less a flat $20,000 rebate (in addition to the currently available GST new housing rebate currently available for prices up to $450,000). According to the Ministry of Finance, roughly half of new housing in urban B.C. is sold for over $400,000.

Price of Eligible New Home (not including GST or HST)

GST Portion – New Housing Rebate1

British Columbia Portion – New Housing Rebate2

Total Rebates

$350,000

$6,300

$17,500

$23,800

$400,000

$3,150

$20,000

$23,150

$450,000 and above

$0

$20,000

$20,000

1. New home buyers may be eligible for the federal GST new housing rebate, which generally equals 36% of the tax paid on the first $350,000 of the purchase price. The amount of the GST rebate is phased out on a straight-line basis for homes priced between $350,000 and less than $450,000.

2. British Columbia proposed rebate for new housing is equal to 5% of the purchase price up to a maximum rebate of $20,000.

In order to avoid the increased tax burden on homes priced over $400,000, vendors and purchasers may consider, wherever possible, completing the sales of new homes prior to July 1, 2010 when the new HST comes into effect. See transitional rules below for more details.

Buyers in the market for a home may be considering purchasing resale properties in order to avoid the increased tax burden on new homes. While the tax on resale properties is not directly affected by the new HST, the cost to the purchaser of these homes may still increase slightly because services associated with the purchase may be subject to increased tax. For example, home inspection charges would be subject to HST.

Apartment Buildings

Residential landlords will face increased costs under the HST, since some goods and (especially) services not currently subject to the PST and necessary in the operation of apartment buildings will be taxed under the HST. As is currently the case with GST, landlords will not be able to claim input tax credits for HST paid and will not collect HST from tenants. Expenses such as maintenance, electricity and other services required by landlords will be taxed at 12% starting July 1, 2010.

Building Lots

Builders of new homes will be entitled to claim input tax credits for most HST paid on their inputs, such as raw land, just as they currently do with the GST. However, new homes in B.C. that are currently subject to the GST will become subject to HST as described above under the New Housing heading. These rules may be subject to anticipated transitional rules.

Commercial Sales and Leasing

Commercial sales and leases will not be materially impacted by the new system. The 12% HST will apply on commercial sales and leases just as the 5% GST does under the current system and input tax credits will be available to tenants and purchasers for the full amount paid.

Real Estate Commissions

Commissions will be subject to HST in the same manner as they currently attract GST. Commercial vendors will be able to claim input tax credits on HST paid to agents, while individuals selling personal use property will not.

Transitional Rules for Pre-Sales

On July 1, 2010, many homes in B.C. will be partially constructed or the subject of incomplete transactions. Although no transitional rules have been announced by the B.C. government to date, rules applicable to such homes will undoubtedly be announced in the future. In Ontario, where a similar HST will come into effect on July 1, 2010, transitional rules were recently released as follows:

  • 5% GST will apply to sales where title or possession of new housing is transferred prior to July 2010
  • 12% HST will apply to sales where title and possession of new housing is transferred after June 2010 unless grandfathered
  • Sale agreements entered into prior to a specified date where title and possession of new housing is transferred after June 2010 will be grandfathered. In Ontario, that specified date is June 18, 2009, the date the transitional rules were announced. If the same approach is taken here, BC's rule will be effective the date its rules are announced or alternatively the July 23, 2009 announcement date (more likely the former than the latter)
  • Where a sale is grandfathered and the building is wholly or partially completed after June 2010, the builder will be liable to pay a transitional tax intended to ensure the building has a tax content equal to what it would have had if constructed wholly prior to July 2010 (i.e., PST paid on all materials). Ontario has adopted an approach to dealing with condominiums whereby the builder must pay 2% of the selling price of the unit (Ontario's estimate of the PST content) and then claim a PST transitional credit for the estimated PST paid on materials prior to July 2010 (formula based). It is unknown if BC will adopt the same approach
  • Where a sale is subject to HST and construction commenced prior to July 2010, the builder will be entitled to a PST transitional credit for the estimated PST paid on materials prior to July 2010 (formula based)

More Information

The links below offer more information on the new B.C. HST.

Ministry of Finance Press Release, Power Point Presentation, and FAQ

BDO commentary

KPMG Tax News Flash

GVHBA commentary: affordability threat

BC Real Estate Association HST FAQs

 



MARKET REPORT FOR NOVEMBER 2009


Strong demand carries into late fall

 Home values continued to edge upward in November as demand in the Greater Vancouver housing market remains well above seasonal norms.

 Over the last 12 months, the MLSLink® Housing Price Index (HPI) benchmark price for all residential properties in Greater Vancouver increased 12.4 per cent to $557,384 from $495,704 in November 2008. This price, however, remains down 1.9 per cent from the most recent high point in the market in May 2008 when the residential benchmark price sat at $568,411.

 “This unseasonably high level of demand can be attributed in large part to low interest rates, but it also speaks to the diverse range of housing options available in Greater Vancouver,” Scott Russell, Real Estate Board of Greater Vancouver (REBGV) president said. “Prospective homebuyers today have more options at different price levels than ever before."

 The REBGV reports that residential property sales in November were the third highest volume ever recorded in Greater Vancouver for that month. Sales in the region totalled 3,083 in November 2009, an increase of 252.7 per cent compared to November 2008 when 874 sales were recorded and a 16.8 per cent decrease compared to the 3,704 sales recorded in October 2009.

 “We are experiencing a brisker than normal market for this time of year, although we have begun to see a reduction in the number of homes listed for sale, which is normal as we head into the holiday season,” Russell said.

 New listings for detached, attached and apartment properties in Greater Vancouver totalled 3,653 in November 2009. This represents a 21.3 per cent increase compared to November 2008 when 3,012 new units were listed, and a 26.6 per cent decline compared to October 2009 when 4,977 properties were listed on the Multiple Listing Service® (MLS®) in Greater Vancouver.

 At 11,039, the total number of property listings on the MLS® decreased 8.6 per cent in November compared to last month and declined 39 per cent from this time last year.

In contrast to this year, note that November 2008 was the lowest selling November in Greater Vancouver in 27 years.

 Sales of detached properties increased 261.5 per cent to 1,164 from the 322 detached sales recorded during the same period in 2008. The benchmark price, as calculated by the MLSLink Housing Price Index®, for detached properties increased 13.6 per cent from November 2008 to $757,209.

 Sales of apartment properties in November 2009 increased 240.5 per cent to 1,396 compared to 410 sales in November 2008. The benchmark price of an apartment property increased 11.6 per cent from November 2008 to $381,945.

 Attached property sales in November 2009 are up 268.3 per cent to 523, compared with the 142 sales in November 2008. The benchmark price of an attached unit increased 10.2 per cent between Novembers 2008 and 2009 to $469,686.

2009-11_NorthVancouver_HPI_5-Year-Trend_Graph copy

2009-11_WestVancouver_HPI_5-Year-Trend_Graph copy