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.