Since July 1, 2010, Ontario’s Harmonized Sales Tax (“HST”) regime has been in place, and the 8% provincial sales tax (“PST”) has been combined with the 5% federal goods and services tax (“GST”) to create a 13% HST.
The HST generally applies in the same manner as the GST to goods and services supplied in Ontario, including transactions involving the sale of new residential real property, commercial real property and lease payments under commercial leasing arrangements.
Under the old tax regime, the sale of new homes and condominiums was subject to GST but not subject to PST. However, under the new tax regime, 13% HST will be charged on the entire purchase price of any new home or condominium, less any applicable rebates.
Ontario has in place a rebate of 75% of the provincial portion of the HST on new construction or substantially renovated homes, on the first $400,000 of the purchase price, regardless of the total price. This works out to a flat rebate of $24,000 (or 6%) on the first $400,000 of the purchase price of a new or substantially renovated home.
There are two ways in which buyers can claim the new housing rebate. Builders can either credit it to buyers on closing as they currently do with the GST new housing rebate, or, alternatively, buyers can apply to the Canada Revenue Agency for the rebate after closing.
HST applies to the sale of a new or substantially renovated home where both ownership and possession of the home are transferred after June 2010. An exception exists if, among other conditions, a written agreement of purchase and sale was entered into on or before June 18, 2009.
HST did not apply to the sale of a new or substantially renovated residential home where either ownership or possession of the home was transferred to the purchaser under a written agreement of purchase and sale before July 2010, regardless of when the parties entered into the agreement of purchase and sale. In that case, only GST at 5% applied.
As sales of resale homes or condominiums have been exempt from GST, the Ontario government agreed that HST would not apply to the sale of resale homes or condominiums. Although resale residential properties are exempt from HST, as of July 1, 2010, the costs associated with the real estate services required to close a resale transaction will be subject to HST (not just GST as in the past). For instance, real estate commissions, legal fees and disbursements, surveyor charges, appraisal fees, home inspections and home energy audits will all be subject to HST.
Sales of non-residential real property in which ownership and possession are transferred are now subject to HST. The purchaser will be entitled to an input tax credit for the HST and the self assessment rules that have been applicable to GST on real property purchases will now apply to HST.
Leases of non-residential real property have been exempt from PST, but were subject to GST. Under the new HST regime, HST at 13% will generally apply to the lease of non-residential real property made by a GST/HST registrant. Leases of real property that are currently exempt under the GST rules would also be exempt under the HST rules. As well, input tax credits for commercial tenants will generally follow the existing GST treatment.
HST will apply to any lease payment that becomes due, or is paid without having become due, on or after July 1, 2010, to the extent that the lease payment pertains to the lease period that began on or after July 1, 2010.
Under the new HST regime, long-term residential leases for residential property will be exempt from HST, as they are under the current GST regime. However, many of the services paid for by residential landlords that have not typically been subject to PST will be subject to HST, such as property management fees, maintenance costs, repair services and electricity. As such, residential landlords may face significantly higher costs once HST takes effect.