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HST is Coming – Impact on Real Estate Transactions
Wednesday, May 5, 2010
Effective July 1, 2010, The Harmonized Sales Tax (HST) will come into effect as the new value added tax to combine and replace the current 8% Provincial Sales Tax (PST) and 5% Goods and Services Tax (GST). The new HST will be at a combined rate of 13%. This is a new federal/provincial tax which will be administered by the Federal Government.
HST will be imposed in a manner very similar to GST. With respect to real estate, the general rule is that unless the transaction is exempt, the tax at 13% will be imposed subject to rebates and transitional rules. The most basic exemption from HST (as for GST) is used residential housing. There will continue to be no HST on these transactions.
On new residential housing, effective July 1st, 2010, HST will be imposed. The GST rebate currently in effect will continue on the GST (5%) portion of the HST. With respect to the PST (8%) portion of the HST, a 75% reduction will be given for sale prices up to $400,000.00, resulting in an effective 2% tax on the provincial portion of the HST to the $400,000.00 threshold. Beyond $400,000.00, the provincial portion will be 8% without rebate. As is currently the situation, the GST rebate will wind down and end at sale prices above $450,000.00. Therefore, HST at the full 13% will be imposed on that part of the consideration above $450,000.00.
There are also transitional rules of some complexity depending upon the date agreements of purchase and sale are executed and when occupancy of the housing unit is given, as well as depending upon the extent of construction completed prior to the invocation of the HST regime.
This is all a significant change on the financial treatment of real estate transactions and should be discussed with your legal advisor before entering into any Agreement. We would be glad to help.
John Hall is a Partner practising in the Real Estate Law Group of Ross & McBride LLP. For more information about this article or assistance with your real estate transactions, please feel free to contact Mr. Hall directly at (905) 572-5814 or jhall@rossmcbride.com.