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Contributed by Howard Rensler
Does anyone else find it curious that the announcement of enhanced rebates and raised thresholds for the application of HST came out one day after the Transitional Rule cutoff for application of the HST to new homes?
Overall the news is good. CHBA has been at the forefront of “negotiations” or “lobbying” on the HST and apparently we have had some impact.
The HST “threshold”: is the lowest price of a new home, to which the new additional tax will apply: is now going to be $525,000. This is being proclaimed a “raised” threshold because the first figure pitched by the provincial government back in July was $400,000. This was never “the” number. It was always a starting point for discussion. And now that “the” number is going to be $525,000: it is being presented that they have responded to our input and “raised” the threshold to better approximate the range of average new home prices here.
They have also “raised” the amount of “rebate” [the money a new home purchaser can apply for as a rebate after purchase. This “maximum” rebate is now going to be $26,250 for homes at or above $525,000.
This rebate was originally presented to be around $20,000, thus it now considered “raised”. It is apparently calculated as 71.43 per cent of the “provincial portion” of the HST. [Quick math is $525,000 x 7 per cent former PST (the Provincial portion) = $36,750 x 71.43 per cent = $26,250].
While the higher this rebate number the better: the fact that it is calculated and related to “the Provincial portion of the HST” is concerning. By referring specially to “provincial Portion” and references like “purchasers of new homes priced up to $525,000 would pay “no more tax, on average than currently” means the GST five per cent “Federal portion” will remain.
So, purchasers of new homes will pay 12 per cent tax in total: the 5 per cent GST/Federal portion remains, but they will be eligible for a rebate of 71.43 per cent of 7 per cent Provincial. [Quick math: $525,000 new home: x 12 per cent total tax = $63,000 or $588,000 total paid at purchase – rebate of $26,250 = $36,750 tax or final total $561,750] The final number works out to be a total 7 per cent tax on new homes over $525,000 which is only a 2 per cent increase in what we are now paying.
That is good news. Only a two per cent cost/tax increase in our most common price range.
SIDE BAR: I get only mild satisfaction in saying I told you so, but I did. I originally reported the $400,000 threshold and total 12 per cent tax were presented to scare us and create a situation whereby, after listening to our outcry: our benevolent government is only really raising new home tax by two per cent.
The Transitioning Rule is what tells us which new homes will be subject to the increased tax and which won’t. The was originally proposed as a convoluted schedule of how complete the home was as of the “effective date” of July 1, 2010. CHBA argued this was absurd and it should be related to more easily identifiable stages of construction. The final decision is now to relate it, not to any stage of completion of the house, but, to the date of the purchase agreement [the deal]. And guess what?
The cut off date for that was yesterday.
SIDE BAR: Imagine the Provincial Government as a person’s face with an outstretched hand in front of it. The thumb is at the tip of the nose and the fingers are wiggling at you.
“The Provincial portion of the HST would not apply to sales of new homes where ownership or possession is transferred before July, 1, 2010.
So if the construction is complete and you move in before July 1st you wont’ pay the extra two per cent.
And, the provincial portion of the HST [the extra 2 per cent] won’t apply to any new homes “under written agreements of purchase and sale entered into on or before Nov.18, 2009”.
The fact that his does not specify whether it needed to be a firm deal or a subject deal or only a deposit reservation is now entirely academic. Some builders are going to get requests this weekend to back date deals for homes that cannot possibly be complete before July 1.
All of this, the rebates, threshold, transition rule etc. only applies to “new homes purchased as a primary residence”.
That means new homes purchased as rental or income producing properties will be taxed at the full 12 per cent irrespective of purchase price. This envelope is pretty much the same as which properties are subject to capital gains tax.
It also means that resale homes are not subject to any HST tax. There was a theoretical opportunity for a builder of a spec home to transfer ownership into private hands before application of the HST and then [even though it is literally a new home] resell it as a resale and be HST exempt. But that option no longer exists because unless that deal to transfer ownership was signed yesterday: it’s too late. The Provincial government has done a good job of closing loopholes.
My suggestion to have the HST apply only to the house/structure portion of the home did not, as I expected, fly. Too bad.
In summary then: the HST will not add any new tax burden on new homes under $525,000. The five per cent GST will still apply. And there might yet be some small GST rebate for new homes between per cent $450,000 [the current GST threshold] and $525,000
After July 1st, HST will add about two per cent to the cost of a new home at about $525,000.
For new homes in higher price ranges it will add 7 per cent-$26,250 [Quick math: $750,000 home @ 12 per cent HST = $90,000 - $26,250 = $63,750 or about 8 per cent total tax for a total cost of $813,750] or about 3 per cent to the cost of the new home.
If you have signed a deal before yesterday to purchase a new home you are HST exempt, no matter the price, even if it isn’t complete by July 1st. But you will still pay GST at 5 per cent. All those ads that read: buy before the HST hits: were giving good advice.
renscon@shaw.ca
hhtp://renscon.blogspot.com
2 Responses to “Opinion: Housing industry expert takes on the HST”
Tags: B.C. Liberals, home buyers, HST
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The HST will be a disaster for all who confront it which is
everyone. It will add an additional burden to all and all
this just to pay the debt for a mismanaged economy, and the
Olympics which will be paid for by the many while serving the financial interests of the very few. In short it will
add costs as the service costs will be born by the consumer
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Hey, it’s either a full HST or nothing. No subsidies to select industries whether home construction or restaurants.
If so, I want a special rebate as well just for living here.
And I’ll likely need it in the New Year now that the Olympic construction boom is virtually over: you know, the one that gave contractors huge, huge profits and tradespeople equally high wages, while the rest of the province and country coughed up the tax money to pay for it all.
Please continue discussion on the forum: link