Provincial Sales Tax (PST) Transition Rules For Newly Built Homes
New Housing Transitional Rules
On Feburary 17th, 2012 the Government announced the transitional rules for returning to the PST. Below you will find information as well as the detailed tax information notice on these rules.
The housing transition rules help ensure when people buy a newly constructed home under the PST, whether built entirely under the HST, entirely under the PST, or partly under HST and partly under the PST, they will all pay a consistent and equitable amount of tax. The transition rules provide certainty for new-home construction and sales, particularly during the transition period.
For newly built homes where construction begins before April 1, 2013, but ownership and possession occur after, purchasers will not pay the seven per cent provincial portion of the HST. Instead, purchasers will pay a temporary, transitional provincial tax of two per cent on the full house price. This ensures equitable treatment among purchasers and will help mitigate distortive market behaviour. Builders will receive temporary housing transition rebates to offset PST on materials to help prevent double-taxation on homebuyers.
- Average amount of embedded sales tax in newly built homes under PST: two per cent.
- Tax paid by purchasers on an $850,000-newly built home after HST rebate: two per cent.
- Tax rate on a newly built home during transition: two per cent.
The B.C. new housing rebate threshold will be increased to $850,000, meaning more than 90 per cent of newly built homes will now be eligible for a provincial HST rebate of up to $42,500. It is important to note that the HST does not apply to resale housing.
To help support workers and communities in B.C. that depend on residential recreational development, purchasers of new secondary vacation or recreational homes outside the Greater Vancouver and Capital regional districts priced up to $850,000 will now be eligible to claim a provincial grant of up to $42,500 effective April 1, 2012.
- B.C.’s portion of the HST will no longer apply to newly built homes where construction begins on or after April 1, 2013. Builders will once again pay seven per cent PST on their building materials. On average, about two per cent of the home’s final price will again be embedded PST.
- The temporary housing transition measures will be in place for two years, until March 31, 2015. The tax only applies to homes where construction begins before the transition date and ownership and possession occur after.
- The temporary housing transition tax and the temporary housing transition rebates will be administered by the Canada Revenue Agency on behalf of B.C. The Province is administering the grant for new secondary vacation and recreational homes.
If you have questions regarding eligibility requirements for the enhanced new housing rebates or new rental housing rebates or about the application of the B.C. transition tax or B.C. transition rebate, please call the Canada Revenue Agency at 1‐800‐959‐8287 (English) and 1‐800‐959‐8296 (French) or go to:
* Note: new home price (before GST/HST and PTT) is higher under the PST system than the HST system because it includes invisible PST.
New housing was not directly subject to PST - the purchaser of a
newly built home did not pay PST on the purchase price. However,
builders had to pay PST on most construction materials (e.g. wood,
cement, plaster, nails, etc.) used to build a home. The PST was part of
the cost of building the home and was included, or “embedded”, in the
total selling price of the home.
It is estimated based on Statistics Canada data that, under the previous PST system, the invisible PST in new homes in B.C. was, on average, equal to about 2 per cent of the price. The amount of PST invisible on a specific new home will vary (i.e. may be more or less than 2 per cent).
Unlike with the PST, under the HST there is no sales tax embedded in the price of new homes because builders, like most other businesses, can recover the HST they pay on their materials and other business inputs through input tax credits (subject to the temporary ITC restriction for large businesses).
Market forces will impact the extent to which both the savings from the removal of invisible PST and the cost of the HST are passed to consumers or absorbed by builders, and will ultimately determine home prices.