Starting July 1, 2010, the provincial sales tax in Ontario and the federal Goods and Services Tax (GST) will be replaced by the 13% federal Harmonized Sales Tax in Ontario. It will be administered by the federal government and will generally use the same rules and tax base as the federal GST. It is important to note that the HST consists of federal 5% and Ontario 8% portions.
The 8% Ontario portion of HST applies to the sale of new housing where the ownership and possession transfer to the purchaser after June 30, 2010. If either the ownership or possession of the property is transferred prior to July 1, 2010 the Ontario portion does not apply.
Disclosure in written agreements
If an agreement is entered into between June 18, 2009 and July 1, 2010, the builder is required to disclose whether the Ontario portion of the HST would apply to the sale and if so, whether the stated price in the agreement includes the applicable provincial portion of the HST, net of the Ontario new housing rebate.
Grandfathering
If the written agreement of purchase and sale of a newly constructed house was before June 18, 2009 and ownership and possession of the property is transferred to the individual after June 2010, the provincial part of the HST would not apply.
RST Transitional tax on grandparented homes
Where an agreement is grandparented and the construction is not substantially complete (90%) at July 1, 2010, the builder must pay a transitional tax adjustment which is intended to approximate the amount of RST that would have been paid had the construction cost been incurred prior to July 1st.
The transitional tax is 2% of the total purchase price of the home and is prorated based on the extent of completion at July 1, 2010.
- 100% of the tax is applicable for a home less then 10% complete
- 75% for 10%-25% completion
- 50% for 25%-50% complete
- 25% for 50%-75% complete
- 10% for 75%-90% complete
The Ontario portion of the HST paid on supplies purchased after July 1, 2010 to complete construction would be available for an input tax credit.
Duplexes and traditional apartment buildings are exempt from these grandparenting rules.
RST Transitional housing rebate
The purchaser of a new home where HST applies to the sale would be eligible for an RST transitional new housing rebate if at least 10% of the construction was complete on July 1, 2010. The rebate is designed to offset the PST imbedded in the cost of the home. The individual can obtain the rebate from either the builder or the CRA using a prescribed rebate form which will be available by July 1, 2010. The builder must certify the degree of completion of the construction at July 1st.
The purchaser can obtain the rebate from either the builder or the CRA using a prescribed rebate form which will be available by July 1, 2010. The rebate is calculated based on the estimated amount of RST embedded in the home by using one of two methods:
- 2% of the estimated selling price of the home
- $45 per square metre of floor space in the home
The percentage of the rebate available depends on the percentage of completion of construction as follows:
- 100% of the rebate is available for a home greater than 90% complete
- 90% for 75%-90% completion
- 75% for 50%-75% complete
- 50% for 25%-50% complete
- 25% for 10% to 25% completed
- 0% for less than 10% completed
A builder would also be entitled to a rebate in a self supply circumstance of similar property. In order to receive the rebate, the builder must provide a valid provincial certificate – a letter of good standing – to their first rebate application. The certificate is available from the Ontario Ministry of Revenue where the builder has no outstanding provincial debts.
Transitional Provincial Sales Tax Rebate for Residential Real Property Contractors
A provincial sales tax rebate will be available with respect to the Ontario retail sales tax (RST) embedded in construction materials used in residential real property contracts that are subject to HST.
The rebate is available to real property contractors for the RST they paid on construction materials that are purchased or produced for the contractors own use and are held in inventory on hand at June 30, 2010. The inventory must be for use in residential real property contracts that will have HST charged on them.
Residential real property contracts that will qualify for this rebate would include the repairs or improvements to land and items permanently attached to land (e.g. buildings and patios). Applications for this rebate must be filed by December 31, 2010 with the Ontario Ministry of Revenue.
GST/HST Rebate
There is a rebate of 75% of the Ontario portion of the HST paid for new housing purchased as principal residences up to a maximum rebate of $24,000 (6% rebate to a maximum of $400,000). There is no phase out of the rebate for new housing purchases above $400,000.
Where the provincial component of HST was not paid on land, the individual is entitled to a rebate on qualifying construction expenses up to a maximum of $16,080 (67% of the $24,000 maximum).
The federal portion of the HST/GST rebate on new homes will continue to apply. The federal rebate is 36% of the GST/Federal portion of HST on the first $350,000 of the home for a maximum of $6,300. The credit is reduced from a maximum of $6,300 for homes greater than $350,000 and the rebate eliminated for homes greater than $450,000 in value.
For a detailed analysis of how your situation will be affected by the transition to HST, please contact your RLB advisor.
