THE HST AND ITS AFFECT ON ONTARIO REAL ESTATE TRANSACTIONS
The Harmonized Sales Tax (HST) came into effect on July 1, 2010 and as I am sure everyone knows, replaces the federal goods and services tax (GST) and the provincial sales tax (PST). The good news from a real estate perspective is that the sale of used residential property (i.e. your home), which was exempt previously from both GST and PST, is also exempt from HST. The bad news is that a number of other services associated with or incidental to real estate transactions are now subject to the 13% HST whereas before they were only subject to the 5% GST. These services include realtor`s commission, legal fees, moving fees and home inspection fees.
The rules for new homes are little more complicated. However an Agreement for the purchase of new home which was signed before June 18, 2009 will not be subject for HST even if the transaction closes after July 1, 2010. A purchaser may also be entitled to receive a transitional rebate of part of the 8% provincial component of the HST where the construction of the home straddles the July 1, 2010 implementation date. For new homes where less than 10% of the house was complete before July 1, 2010, there will be a rebate available equal to 36% of the federal component of the HST and 75% of the provincial component of the HST. However the rebate of the provincial component of the HST is only available for the first $400,000.00 of the purchase price. If you are paying more than this, there will be no rebate on the amount of the purchase price which exceeds $400,000.00.
Typically new homes in Ontario were priced with the GST included. The builder would pay the GST on closing. The purchaser would assign the right to receive the rebate to the builder in the Agreement of Purchase and Sale. It is unclear whether this practice will continue under the HST regime especially for homes valued at more than $400,000.00. As such you should make sure that the price you agree to pay does include the HST. If not, tax of 13% will be added on closing and you will have to apply to receive the rebate from each of the federal and provincial governments. In addition there will be no rebate available for the provincial component of the tax payable on the portion of the purchase price exceeding $400,000.00.
Commercial real estate will be subject to HST. However provided the purchaser and seller are HST registrants, the purchaser will be able to claim the HST paid as an input tax credit. As such it is very important that the Agreement of Purchase and Sale addresses this issue.
Residential lease payments were exempt from GST and remain exempt from HST. Commercial rental payments however will be subject to the full 13% HST, and the payer will be entitled to claim an input tax credit for the full amount of the payment.
No matter how you look at it, the HST is another flagrant tax grab for the already highly taxed Canadian consumer. Because it is an end-user tax, businesses will now be able to claim the provincial portion of the HST on goods they buy in the course of carrying on their business as an input tax credit whereas before PST could not be recovered unless a business qualified for a specific exemption. It remains to be seen however how much of the increased cost of an Ontario real estate transaction can be passed on to consumers. It is a safe bet that the slowing of the real estate market since the HST came into effect is not a coincidence. Courtesy of Michael Woods
Any questions, please let me know, thank you, Mark