Goods and Services Tax – when and how much?
G.S.T. applies to new or substantially renovated housing – Substantially renovated is defined in the legislation as the removal or replacement of most of the house construction components except for the foundation, external walls, interior supporting walls, floor, roof and staircase.
G.S.T. does not apply to used residential housing – unless the property falls within certain categories, such as strata hotel, short term rental property, mixed use property or other such items. Used residential housing which has been used as a principal residence or long term rental is not subject to G.S.T. but if any unique facts exist you should contact an expert.
The rate of tax for G.S.T. is 5% – subject to any rebates, discussed below.
There is a potential rebate of 36% of the G.S.T. paid for a buyer who purchases the home with the intention of making it her or his principal residence – but there are qualifications:
- The home must become the principal residence of the buyer (or a related family member); the intent to use the home as the primary place of residence must be evident at the outset of buying the home. A recreational cottage, an investment property or a property you might retire to in the distant future do not qualify;
- For a full rebate the home must be less than $350,000; as an example, assume the purchase price of a new home is $350,000 excluding G.S.T. The gross G.S.T. is $17,500 (5% of $350,000). The S.T. New Housing Rebate is 36% of $17,500, which is $6,300. Thus, the applicable G.S.T. is $17,500 less $6,300, which equals $11,200;
- There is no G.S.T. New Housing Rebate on homes valued at over $450,000.00 so the full 5% will be paid;
- For homes valued between $350,000.00 and $450,000.00, the rebate is gradually reduced and is calculated by using the following formula (get ready to brush up on your high school math): $6,300 x [$450,000 – the purchase price] / $100,000
- Rather than try and calculate the formula, use our calculator at https://www.bcrealestatelawyers.com/gst-calculator/
Note that the Developer may agree in the Contract to credit the Purchaser on completion for the rebate, but not all Developers allow this. If they do not, the Purchaser will have to pay the full 5% G.S.T. on completion and will then have to apply directly to C.R.A. for the G.S.T. New Housing Rebate after closing. This means the Purchaser will have to ensure that they have additional funds to cover the 5% G.S.T. on completion. Note the G.S.T. New Housing Rebate is not available to a corporation or a partnership.
There is also a potential rebate of 36% of the G.S.T. paid for a buyer who purchases the home with the intention of making it available for rent, again with qualifications:
- The Purchaser must not be entitled to claim input tax credits in respect of any part of the tax payable on the acquisition of the rental unit;
- The rental unit must be a “qualifying residential unit” which means the person applying for the rebate must be the owner of the unit and the unit must be a self contained residence as defined in the Excise Tax Act;
- The unit must be held by the owner for the purpose of making exempt supplies (for example, a residential tenancy);
- The unit must be used as a primary place of residence by the tenants and must be so used for at least one year and the Purchaser will have to provide a copy of the tenancy agreement showing a term of at least one year.
Like the New Housing Rebate, the full Rental Rebate is only available on new homes priced up to $350,000. A partial G.S.T. NRR Rebate is available for homes priced between $350,000 and $450,000. The actual rebate calculations are identical to rebate calculations for the G.S.T. New Housing Rebate.
Note the Developer is not allowed to credit the Purchaser on completion with the Rental Rebate. This means the Purchaser will have to pay the full 5% G.S.T. on completion and then claim the Rebate afterwards directly from C.R.A.. The Purchaser will have to ensure that they have the necessary funds to cover the 5% G.S.T. on completion.
Does G.S.T. apply to new mobile homes and floating homes?
Yes, for a purchase of a newly constructed or substantially renovated mobile home or floating home, 5% G.S.T. will apply on the purchase price of the mobile home or floating home. The Purchaser will be able to claim the various rebates, as applicable.
Does G.S.T. apply to the sale of vacant land by an individual?
Maybe (how is that for a definitive answer!!). Examples of when G.S.T. would be applicable include: 1) the sale of land that is capital property that had been used primarily in a business; 2) the sale of land in the course of a business; and 3) the sale of a parcel of land created by subdividing another parcel into more than two parts. The sale of land by an individual that had been kept for personal use would be exempt from G.S.T.
Where can I obtain more G.S.T. information?
For more information on G.S.T. see www.rev.gov.B.C..ca and/or phone Ministry of Finance at 1-877-388-4440 and see www.cra-arc.gc.ca/gncy/hrmnztn and/or phone the C.C.R.A. line 1-800-959 5525 or 1-800-959 8287 specifically for questions about G.S.T. rebates.