On Friday, June 19, 2009, the Province released Single Sales Tax Information Notice No. 2 dated June 18, 2009 providing further details on the implementation of the Harmonized Sales Tax announced in the 2009 Ontario Budget. This Client Alert summarizes those provisions relating to new condominium sales.
Enhanced New Housing Rebate
The proposed provincial component of the new housing rebate is to be enhanced such that new condominiums purchased as primary residences across all price ranges (not just under $500,000) would qualify for a new housing rebate up to a maximum of $24,000 and new condominiums priced up to $400,000 would not attract any additional tax other than that currently included in the sale price.
The effect of the enhanced rebate would be to apply the provincial portion of the HST at a rate of 2% on the first $400,000 of the purchase price and at a rate of 8% on the portion above $400,000.
This provincial new housing rebate would be available for the same type of housing and presumably on the same basis as the federal Goods and Services Tax ("GST") new housing rebate, ie. that such new condominium is used as a primary place of residence of an individual purchaser or a "relation" (as defined in the federal legislation) of that individual purchaser. Application for the provincial new housing rebate would be similar to the GST new housing rebate if same is not addressed on the final closing statement of adjustments.
Transitional Rules for New Condominiums
Transitional rules are proposed for new home transactions that straddle July 1, 2010.
Sales of new condominiums will be subject to the HST where both ownership and possession of the home are transferred after June 2010.
Sales of newly constructed or substantially renovated homes under existing written agreements of purchase and sale entered into on or before June 18, 2009 would be grandfathered, such that these sales would not be subject to the provincial portion of the HST even if both ownership and possession of the homes are transferred after June 2010.
Vendors would generally be able to recover the provincial portion of the HST payable on most purchases through input tax credits, similar to the regime under the federal GST, with limited exceptions (relating to large businesses with annual taxable sales in excess of $10 million and financial institutions).
Where the transaction falls under the grandfathered provisions, a transitional tax adjustment would be payable - to account for tax that would (on average) have otherwise been embedded in the cost of the new home under the current provincial Retail Sales Tax ("RST") regime (see Transitional Tax Adjustment and RST Transitional Rebate discussion below).
Vendors and Purchasers of grandfathered agreements must be careful not to amend such agreements to an extent that they are held to be new agreements (for example, by changing parties, property purchased or price) in which case the benefit of their grandfathered status may be at risk.
Increased reporting and disclosure requirements
Vendors are also required to meet certain reporting and disclosure requirements for grandfathered condominium sales.
If the agreement of purchase and sale for a new condominium is entered into after June 18, 2009 and before July 1, 2010, the Vendor is required to disclose in the agreement whether the provincial portion of the HST applies to the sale and, if so, whether the stated price in the agreement includes the applicable provincial portion of the HST (net of the provincial new housing rebate).
If the transaction would be subject to the HST and the Vendor did not address the application of HST as outlined above, the stated price in the agreement would be deemed to include the provincial portion of the HST. In that case, the Purchaser would not be required to pay the provincial portion of the HST in addition to the stated price in the agreement.
It is therefore critical that all agreements entered into from and after June 19, 2009 address the application of the HST, otherwise the Vendor would be responsible for the provincial portion of the HST and cannot pass on that additional cost to the Purchaser.
Transitional Tax Adjustment – condominiums
For grandfathered new condominium sales, the Vendor would be required to remit a transitional tax adjustment and may also be eligible for an RST transitional housing rebate.
The transitional tax adjustment would be calculated at 2% of the total purchase price (net of GST).
RST Transitional Rebate
Newly constructed condominiums completed in full or in part prior to July 2010 would have RST embedded in the cost of the home. For new homes that are subject to the provincial portion of the proposed HST after June 2010, an RST transitional housing rebate ("RST Transitional Rebate") would be available to offset the RST embedded in the cost of the home.
This RST Transitional Rebate would be available for non-grandfathered new condominiums as well as grandfathered condominiums for which the transitional tax adjustment would be payable. It is important to note that the RST Transitional Rebate would be available to the Vendor, not the Purchaser. The Province notes in its June 18, 2009 Information Notice No. 2 that "Taken together, the transitional tax adjustment and the RST transitional housing rebate would approximate the tax that would have otherwise been embedded in the price of the new condominium, on average, under the current RST regime.".
RST Transitional Rebate calculation
Generally, the RST Transitional Rebate would be calculated as a proportion of the estimated embedded RST in the new home, based on the degree of completion of the home as of July 1, 2010.
Calculation of the estimated RST (or the embedded RST) is made by either of the following two methods:
- Estimated RST calculated at a prescribed amount (to be announced in the coming months) per square metre of floor space in the home ("floor space method"); or
- Estimated RST based on the sale price, calculated at 2% of the total price (net of GST) ("selling price method").
The RST Transitional Rebate would be calculated based on the extent of construction completed as of July 1, 2010, as follows:
To view table click here.
Eligibility for the RST Transitional Rebate would not affect the Purchaser’s or Vendor’s ability to claim the new housing rebate or new rental housing rebate, as applicable.
RST Transitional Rebate timeframes
Where the RST Transitional Rebate calculation is based on the floor space method, the applicant would be eligible to file its application any time on or after July 1, 2010.
Where the RST Transitional Rebate calculation is based on the selling price method, the applicant would be eligible to claim the rebate no earlier than the day the HST or the transitional tax adjustment, as the case may be, would be payable.
Generally, applications for an RST Transitional Rebate would need to be filed before July 1, 2014.