Introduction

In the continued analysis of the provided examples regarding the application of the Harmonized Sales Tax (HST) to sales of new housing, it’s clear that the rules can be quite intricate and are determined by specific dates and conditions outlined by the Canadian tax authorities. Let’s delve deeper into these examples to gain a comprehensive understanding:

General Rule: The general rule establishes that purchasers of new housing are required to pay the HST if both ownership and possession of the housing are transferred to them after June 2010. However, if either ownership or possession is transferred before July 2010, only the Goods and Services Tax (GST) at 5% applies.

 

Example 1

HST does not apply: In this example, the purchaser enters into an agreement in March 2010 to buy a residential condominium unit with ownership and possession transferring in June 2010. As both ownership and possession transfer before July 2010, only the 5% GST applies.

 

Example 2

HST does not apply: Here, a written agreement from April 2009 is made to purchase a newly constructed detached house with possession transferring on June 30, 2010, and ownership on July 3, 2010. Since possession transfers before July 2010, only the 5% GST applies.

 

Example 3 – HST applies: In this case, a written agreement from December 2009 is made to purchase a detached house with both ownership and possession transferring in July 2010. As both the agreement and transfer date are after June 18, 2009, and June 2010, respectively, the HST at 13% applies.

 

Example 4

HST applies: Similarly, a written agreement from August 2009 is made to purchase a detached house with both ownership and possession transferring in July 2010 due to construction delays. Since the agreement date is after June 18, 2009, and both transfers occur after June 2010, the HST at 13% applies.

These examples emphasize the importance of understanding the specific dates and conditions laid out in the rules to determine the applicable tax rate.   Grandparented Purchases of Housing: The “grandparenting” rule applies to written agreements entered into on or before June 18, 2009, for newly constructed or substantially renovated “single unit housing,” residential condominium units, or condominium complexes, where both ownership and possession transfer after June 2010. If these conditions are met, the purchaser is not required to pay the provincial part of the HST.  

Example 5 

Grandparented house: Jaroslav enters into a written agreement in May 2009 to purchase a detached house with ownership and possession transferring in August 2010. This purchase qualifies for “grandparenting” as it meets all the conditions. Therefore, only the 5% GST applies.  

Example 6 

Grandparented condo unit: In this example, a written agreement from March 2009 is made to purchase a residential condominium unit with ownership and possession transferring in 2011. As both conditions for “grandparenting” are met, only the 5% GST applies. However, it’s essential to note that the grandparenting rule applies differently depending on the type of housing and whether the purchaser is an individual or an entity, such as a corporation.  

Example 7

House not grandparented: In this scenario, a corporation enters into an agreement to purchase a detached house before June 18, 2009, with both ownership and possession transferring after June 2010. Since the purchaser is not an individual, the grandparenting rule does not apply, and the HST at 13% applies.   Exceptions to Grandparenting Rule: The grandparenting rule does not apply to certain types of housing, including floating homes, mobile homes (including modular homes qualifying as mobile homes), and multi-unit residences like duplexes and co-operative rental buildings.  

Example 8

Apartment building not grandparented: Here, an agreement is made to purchase an apartment building before June 18, 2009, with both ownership and possession transferring after June 2010. However, traditional apartment buildings do not qualify for grandparenting, and the HST at 13% applies.   Upgrades: When purchasers request upgrades to housing, such as flooring and lighting fixtures, the tax rate for these upgrades aligns with the tax rate for the original purchase of the housing. If the agreement is amended but doesn’t substantially change, the grandparenting rule’s application is based on the original agreement date.  

Example 9:

In this example, Joy purchases a detached house with upgrades, and the agreement is amended. Since the written agreement was made before June 18, 2009, and both ownership and possession transfer after June 2010, the purchase is grandparented, and the 5% GST applies.  

Example 10:

Dan purchases a different condo unit due to an agreement amendment. However, this is considered a new agreement, made after June 18, 2009, so the purchase is not grandparented, and the HST at 13% applies. In summary, these examples highlight the complex rules governing the application of HST to the sale of new housing in Canada. It’s crucial for both buyers and sellers of residential properties to be aware of these rules and their specific circumstances to determine the applicable tax rate accurately. Consulting with tax professionals or referring to official guidelines can help ensure compliance with these regulations.

Builder Disclosure Requirements for Housing:

  In addition to understanding the timing and conditions related to the HST, it’s essential for both builders and purchasers to be aware of builder disclosure requirements, particularly when it comes to new housing. These requirements are designed to provide transparency in the transaction process and help purchasers make informed decisions. Builders are typically obligated to provide specific information to purchasers before the sale of new housing, including details about the HST, any applicable rebates, and other relevant tax-related information. Failure to meet these disclosure requirements can have legal and financial implications. For individuals considering the purchase of newly constructed homes, it’s advisable to review these disclosure documents carefully and seek legal or financial advice if needed to ensure a complete understanding of the transaction.

Novation of Agreements:

Another crucial aspect to consider is novation, which can occur when an existing agreement of purchase and sale is modified or varied to such an extent that it is essentially treated as a new agreement. In cases where novation occurs, the application of the grandparenting rule may be based on the date the new agreement is entered into.  

Example 10

Novation and New Agreement: In this scenario, Dan initially enters into an agreement to purchase one residential condominium unit. However, the agreement is substantially altered to purchase a different unit. This significant change constitutes a new agreement, and since it was made after June 18, 2009, the grandparenting rule does not apply, and the HST at 13% applies. Understanding when novation occurs is essential because it can affect the tax implications of a housing purchase. Consulting with legal or financial experts can provide clarity in such situations. In conclusion, navigating the rules and regulations related to the application of HST to the sale of new housing in Canada requires careful attention to specific dates, conditions, and disclosure requirements. Potential buyers and builders should be diligent in understanding these rules, especially considering the potential financial impact of the tax rates involved. It’s advisable to seek professional advice, consult official guidelines, and review any builder-provided documentation when engaged in such transactions. Being well-informed and compliant with tax regulations ensures a smoother and more transparent process for all parties involved in the sale and purchase of new housing. Additionally, staying up-to-date with any changes in tax laws and regulations is essential, as these rules may evolve over time and impact future transactions.