Information provided by BCREA.


How will the HST impact the real estate sector?

As proposed, the HST will increase the cost of buying or selling all types of property and becomes essentially an additional tax on home ownership. REALTOR® commissions, appraisals and other services will be subject to a 12% HST, replacing the 5% GST now charged, and new homes will be subject to the full HST.

The HST would generally apply to a supply of a service to the extent that the service is performed on or after July 1, 2010. The HST would generally not apply, however, to a supply of a service if all or substantially all (90% or more) of the service is performed before July 2010.

For more information and to see the General Transitional Rules for BC, click here. For the Residential Housing New Housing Rebates and Transitional Rules for BC click here.

Will HST apply to commercial transactions and leases?

The HST will apply if ownership and possession are transferred to the buyer on or after July 1, 2010.

According to a July 28, 2009 article by Clark Wilson LLP’s Commercial Real Estate Group, commercial sales and leases will not be materially impacted by the new system. The 12% HST will apply on commercial sales and leases, just as the 5% GST does under the current system, and input tax credits will be available to tenants and buyers for the full amount paid.

According to BDO Dunwoody, the net effect of an HST sale of a commercial building should be zero if the purchaser is a GST/HST registrant and uses the building entirely in commercial (taxable) activity. The HST charged on real estate commissions to sellers of commercial real property should be fully recoverable, provided the seller is an HST registrant and was using the land exclusively in commercial activities.

For more information and to see the General Transitional Rules for BC, click here.

What about residential leases?

According to BDO Dunwoody, leases of residential property that were not subject to the GST will also not be subject to the HST. However, it is important to note that most, if not all, of the costs associated with the rental of residential property that were subject to the GST will become subject to the HST as of July 1, 2010. Since the anticipated increase in costs for residential landlords cannot be claimed as an input tax credit, it will be imperative for residential landlords to review their leases with legal counsel to determine if an increase in rent to account for the additional tax can be applied.

Will property managers be affected?

Yes. Property management services are typically subject to GST, and will become subject to the HST. According to BDO Dunwoody, depending on the nature of the property being managed (i.e., commercial vs. residential), and the GST/HST registration status of the owner of the property, the increase from the 5% GST to the 12% HST may not result in any additional cost for the owner. If the owner is entitled to a full input tax credit for GST purposes, they should be entitled to a full input tax credit under the HST. If the owner of the property is not registered for the GST or is not entitled to a full input tax credit (e.g., the property is a residential apartment building), the additional 7% of the HST will become a cost for the owner.

How will bare land be impacted?

According to BDO Dunwoody, the sale of land is currently the one supply where the GST may become collectible, regardless of the GST registration status of the seller. With the implementation of the HST, land sales that are subject to the 5% GST will become subject to the 12% HST. Any person who sells land should determine whether the HST is applicable to the sale. PST does not apply to the sale of bare land.

GST taxable sales of bare land do not require (or allow) for the seller to collect the GST from the buyer if the buyer is registered for the GST at the time of the sale. These same rules are expected to apply for the HST. A seller who makes a taxable sale of bare land to a buyer who claims to be registered for the HST should verify the HST registration with the Canada Revenue Agency (CRA). The CRA has established its own website (www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/gsthstrgstry/menu-eng.html) that allows a person to verify the registration status of a seller.

When a buyer who is registered for the HST acquires land that is subject to the tax, they are required to self-assess the HST payable on their HST return. Generally, when the land is used more than primarily (50%) in the buyer's commercial (taxable) activity, a full input tax credit can be claimed on the same return. The reporting of the self-assessment and the entitlement to claim a full input tax credit should result in no net tax for the buyer.

The HST charged on real estate commissions related to sales of bare land should be fully recoverable, provided the seller is an HST registrant and was using the land exclusively in commercial activities.

When does HST become payable?

BDO Dunwoody anticipates transitional rules similar to those imposed for other harmonization and used in the recent federal reductions of the GST. If these rules apply, where a purchase and sale agreement for a new home is entered into on or after July 23, 2009, and ownership or possession of the house is given to the purchaser before July 1, 2010, the GST at 5% should apply to the sale. For new homes where the purchase and sale agreement is entered into on or after July 23, 2009, and both ownership and possession is given to the buyer after June 30, 2010, the HST at 12% is expected to apply to the sale.

For new homes where the purchase and sale agreement was entered into with the buyer before the July 23, 2009 government announcement, it is expected that only the GST at 5% will apply, regardless of when ownership and possession transfers to the buyer.

Is there any relief for buyers of new homes?

To offset the increase in costs, the Government of BC plans to offer a partial rebate of the provincial portion of the HST for new (and substantially renovated existing) housing to ensure that new homes up to $525,000 will bear no more tax than under the current PST system, while homes above $525,000 will receive a flat rebate of $26,250. New home sales over $525,000 will be impacted, as buyers will have to pay an additional 7% tax less the $26,250 flat rebate.

For more information and to see the Residential Housing New Housing Rebates and Transitional Rules for BC click here.

How will the HST apply to construction and renovation projects?

The HST would generally apply to progress payments on contracts to construct, renovate, alter or repair real property to the extent that the progress payment can reasonably be attributed to property delivered or services performed on or after July 1, 2010.

In the case of written contracts to construct real property where it can be reasonably expected that the contract will require more than three months to complete, if the construction is substantially completed (90% or more) before June 2010, the construction would be deemed to have been substantially completed on June 1, 2010. Pursuant to the general GST rules, any consideration or part of the consideration payable on such a contract that had not been paid or become due on or before July 31, 2010 would be deemed to have become payable on July 31, 2010 and any portion of such payment attributable to construction on or after July 1, 2010 would be subject to the HST.

The progress payments rule would not apply to sales of newly constructed or substantially renovated homes, which would be subject to the transitional rules for new residential housing, which have yet to be released.

For more information and to see the General Transitional Rules for BC, click here.