This article will examine the BC HST Transitional rules for pre-sale Vancouver property and pre-construction BC real estate purchases. At this time, not much is known about the policies surrounding the British Columbia HST Transitional rules for new homes, but we can explain how the new Ontario HST Transitional rules work.

BC HST Transitional Rules for Pre-Sales and Pre-Construction Vancouver Housing
Because the introduction of the BC Harmonized Sales Tax will not take place until July 2010, the BC Government and Ministry of Finance are still finalizing some rules and regulations surrounding the new harmonized tax. Therefore, not many facts are known about the very important BC HST Transitional Rules pertaining to pre-sale Vancouver condos and property as well as pre-construction BC property in general. No transitional HST rules have been formally announced, but it is expected that the government will announce these new rules and regulations later in 2009 or even early 2010, which doesn’t leave much time for home builders and homebuyers looking for new BC or Vancouver property to make decisions on the single most expensive purchase in their lifetime. The disparity between the timing of the announcement and the HST transitional rules is irking many home builders in a bad way. In many instances, BC and Vancouver home builders will need to budget timelines correctly in order to complete projects on time or before the July 1st, 2010 if the HST transitional rules state that the 12% HST is due on any projects completing after that date. However, if the BC government confirms that any contract signed before July 1st, 2010 but is completed after that date is only subject to the 5% GST (current scenario) and not the 12% BC harmonized sales tax, then there shouldn’t be any rush in completing projects or to announce new real estate developments at this time. In any case, there are a lot of questions surrounding the transitional BC HST rules and regulations, but time will tell. The BC Government may actually follow Ontario’s lead as they have just developed their plan for the HST transitional rules for their province. However, it could be very different as well.

The Ontario HST Transitional Rules for Pre-Sale Homes and Real Estate
Like the BC HST, the Ontario HST harmonized sales tax will be implemented on July 1, 2010. However, unlike BC, Ontario’s government has already stated the HST transitional rules one year prior to introduction of their new harmonized sales tax (which is actually 13%, 1 per cent higher than BC’s). Here are the factual Ontario HST transitional rules for the Harmonized Sales Tax. Firstly, for any contracts signed before July 1, 2010 and new homes completed before this date, the 5% GST on new homes will still apply. The Ontario HST will not have been implemented yet and will therefore not affect these Ontario homebuyers. However, if title and possession of new Ontario housing is transferred on or after July 1st, 2010 (unless they are grandfathered), the full 12% HST (minus HST rebate) will be applied even if the original contract is signed before the introduction date of the Ontario harmonized sales tax.

Grandfathering New Housing Projects – The Grandfather Incentive and the Ontario HST Transitional Rules
Now this is where it gets more complicated. The term grandfathering or grandfathered pertains to the ability that new homebuyers have the ability to ‘lock-in’ previous taxes and laws even after a new law or rule is implemented. The date in new home sales contracts was back on June 18, 2009. So for the new Ontario HST, sales agreements and contracts made before June 18, 2009 can be grandfathered even if title and possession of the new home or real estate property is made after July 1st, 2010, the date of the implementation of the Ontario Harmonized Sales Tax of 13%. If the BC Government takes the same approach, the grandfathering or grandfathered date would be the date of the announcement of the provincial HST transitional rule of 12% which is July 23, 2009. What this means is that if you, as a new home buyer of property in BC or Greater Vancouver, purchased and signed a sales agreement/contract with a developer/builder on or before July 23, 2009, even if your new property closes (title and possession are transferred to you) after July 1st, 2010, you will only need to pay the original 5% GST or a blended tax with larger rebate. In Ontario’s HST Transitional rules, where a sale is grandfathered and the property is entirely or partially completed after June 30, 2010, the builder or developer will be liable to pay a transitional tax intended to ensure the building has a tax content equal to what it would have had if constructed wholly prior to July 2010 (PST paid on all materials and construction costs). Ontario’s HST transitional rules have adoped an approach to deailing with condominiums whereby the builder/developer must pay 2% on the selling price of the unit (which is Ontario’s estimate of the PST content in the blended tax) and then claim transitional credit for the estimated PST paid on materials prior to July 2010. This is all very complex, but can be calculated using a formula provided by the provincial government for the HST transitional rules. As of right now, it is unknown what methodology the BC government will implement when it comes to the grandfathering and grandfathered tax situation for the harmonized sales tax HST transitional rules. Lastly, when there is a new sale that is subject to HST and the construction started prior to July 1, 2010, the builder or developer will also be entitled to a PST transitional credit (not a rebate) for the estimated PST paid on materials prior to the July 1, 2010 date. Again, this figure is calculated using a complex formula.

Stay tuned for more information released about grandfathering and other situations regarding the BC HST transitional rules for the new harmonized sales tax.

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