HST Update
October 23 2009
Getting Ready for Sales Tax Harmonization in Ontario and British Columbia
REALTORS® need to get ready for Ontario’s and British Columbia’s (BC) new harmonized sales tax (HST). Although the changes will take effect on July 1, 2010, the time to start preparing is now. In fact, the HST will impact certain current agreements, such as purchase and sale agreements for new homes that close on or after July 1, 2010. In addition, REALTORS® will need to take into account the application of HST to their services to be performed on or after July 1, 2010. Background The BC government announced on July 23, 2009 that BC would harmonize its 7 percent PST with the GST to create a 12 percent HST on most GST-taxable goods and services provided in BC. The HSTs will generally apply to the same tax base as the GST, with some exceptions. The HST will be federally administered by the Canada Revenue Agency (CRA). GST/HST registered businesses will only be required to file one GST/HST return and there will be one audit. How will Sales Tax Harmonization Affect REALTORS®? The sales tax treatment of GST registered REALTORS® services will change. GST registered REALTORS® will be automatically registered for the HST. Rather than REALTORS® commissions being subject to GST at the rate of 5 percent, REALTORS® commissions for services in British Columbia will generally be subject to HST at the rates of 13 and 12 percent respectively. Ontario and BC recently released general transitional rules for the HST. These rules explain how HST will apply to transactions that straddle the start-up date. For purposes of the following discussion, it is assumed that a REALTORS® commission becomes due or is paid when the property is sold or leased. The HST would generally apply to REALTORS® services to the extent, expressed as a percentage, that the services are performed on or after July 1, 2010. However, if 90 percent or more of the services are performed before July 1, 2010, the HST will not apply. For example, a REALTORS® services are performed from June 1, 2010 to July 2, 2010 with the sale of the property closing on July 2, 2010. The REALTORS® commission becomes due at that time of closing. More than 90 percent of the REALTORS® services were performed before July 1, 2010. In these circumstances, the GST at the rate of 5 percent will apply to the REALTORS® services. In another example, a REALTORS® services are performed from May 1, 2010 to July 31, 2010 with the sale of the property closing on July 31, 2010. The REALTORS® commission becomes due at that time. In this case, two thirds of the services were 3 performed from May 1, 2010 to June 30, 2010 and one third of the services were performed from July 1, 2010 to July 31, 2010. The REALTORS® will charge GST on two thirds of the amount charged for the services and HST on the remaining third. What is the Impact of HST on Real Estate Transactions? The HST treatment of real estate transactions will generally follow the current GST treatment of real estate transactions. Sales of used residential housing and long-term rentals of residential housing will be exempt for HST purposes. Sales of new residential housing will be subject to HST and will qualify for GST, HST, and transitional rebates (subject to certain thresholds and maximum amounts). Sales and rentals of commercial real property will be subject to HST. 4