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HST Information
Prince Edward IslandReal Estate Association
February 22, 2013
HST Facts Tax System Comparison Real Property Contracts, GST/PST – Current Status Real Property Contracts, HST Residential Construction, GST/PST example Residential Construction, HST example Non-Residential Construction, GST/PST example Non-Residential Construction, HST example GST/PST to HST Transition HST Additional Information
Presentation
2PEI Real Estate Association
Effective April 1st, 2013 HST rate - 14%
• Federal component - 5%• Provincial component – 9%
Point of sale rebates• Heating oil, children’s clothing, children’s footwear and books
Rebate program for low and modest income households Administered by the Canada Revenue Agency In general, GST rules will apply to HST
HST Facts
3PEI Real Estate Association
Input Tax Credits (ITCs) Input tax credits (ITCs) are credits for the GST/HST paid
or payable on most property and services acquired for consumption, use or supply in a commercial activity.
ITCs are generally based on extent of the property or service in commercial activities.
To claim an ITC, a person must be a GST/HST registrant.
ITCs are claimed on a GST/HST return.
HST Facts
PEI Real Estate Association 4
Supplies A ‘supply’ is the provision of property or services in any manner Taxable, zero-rated or exempt Small suppliers [≤$30,000 revenue ($50,000 for public service bodies) from
taxable supplies, including zero-rated supplies]
Taxable Supplies Taxable at the HST rate for the participating province (PEI - 14%) where
they are made in PEI and are not zero rated Businesses who make taxable supplies can claim “input tax credits” for tax
paid or payable on inputs acquired to make those supplies
HST FactsApplication of HST
PEI Real Estate Association 5
Zero-rated Supplies Taxable at the rate of 0% Businesses that are GST/HST registrants who make zero-rated supplies
can claim “input tax credits” for the GST/HST paid or payable on inputs acquired to make those supplies.
Zero-rated supplies are effectively tax free
HST FactsApplication of HST
PEI Real Estate Association 6
Exempt Supplies Exempt supplies are not subject to the GST/HST Businesses making exempt supplies cannot claim “input tax credits” for the
tax paid on inputs acquired to make those supplies Tax paid on inputs is an additional cost of doing business
HST FactsApplication of HST
PEI Real Estate Association 7
Exempt Suppliers and Small Suppliers(*): The business will not be able to claim input tax credits for
HST paid by the business• HST expense (e.g., HST applied to electricity, rent, etc.) will increase
costs for these businesses which may have to be passed on to customers
(*) Small suppliers [i.e., those whose revenue from taxable supplies, including zero-rated supplies is ≤$30,000 ($50,000 for public service bodies) who choose not to register for GST/HST].
HST Facts
PEI Real Estate Association 8
Provincial Sales Tax (PST) – A Cascading Tax Example Tourist accommodation operator pays PST on items such as
construction materials, repairs and maintenance, computer equipment and systems, accounting fees, office supplies and accommodation supplies used in providing guest accommodations
Operator embeds the PST paid into the cost of accommodations Customer pays GST and PST on cost of accommodations Customer pays tax on tax
• GST and PST on the tax embedded into the cost of accommodations• PST on top of GST on cost of accommodations
Tax System Comparison
PEI Real Estate Association 9
Harmonized Sales Tax (HST) – A Value Added Tax Example Tourist accommodation operator pays HST on items such as
construction materials, repairs and maintenance, computer equipment and systems, accounting fees, office supplies and accommodation supplies used in providing guest accommodations
Operator receives an input tax credit for all HST paid Operator does not embed tax into the cost of accommodations Customer pays HST on cost of accommodations Customer does not pay tax on tax
Tax System Comparison
PEI Real Estate Association 10
Subject to GST at 5% Purchase of building materials used in real property contracts Most purchases of land Subcontracts Purchase of most goods and services used by contractors in their
operations
Real Property ContractsGST/PST – Current Status
Expenses
11PEI Real Estate Association
Subject to PST at 10.5% (effective rate) Purchase of building materials used in real property contracts Purchase of goods and services used by contractors in their
operations
Exempt from PST Purchase of land Subcontracts (*)
(*) Subcontractor does have PST embedded in cost of contract
Real Property ContractsGST/PST – Current Status
Expenses
12PEI Real Estate Association
Input tax credits for GST (5%) payable on purchases Purchase of building materials used in real property contracts Purchase of land Subcontracts Purchase of goods and services used by contractors in their operationsPST at 10.5 % (effective rate) Embedded in Contract Purchase of building materials used in real property contracts Purchase of goods and services used by contractors in their operations
Real Property ContractsGST/PST – Current Status
Expenses
13PEI Real Estate Association
Real Property ContractsHST
Expenses
Subject to HST at 14% Purchase of building materials used in real property contracts Most purchases of land Subcontracts Purchase of most goods and services used by contractors in their
operations
14PEI Real Estate Association
Input tax credits for HST (14%) payable on purchases Purchase of building materials used in real property contracts Purchase of land Subcontracts Purchase of goods and services used by contractors in their
operations
Real Property ContractsHST
Expenses
15PEI Real Estate Association
Real Property ContractsHST
ExampleExpense Type: Building materials
Under GST/PST
Cost $77,500
GST – 5% 3,875
PST – 10% 8,137
89,512
Input tax credit 3,875
Net Cost $ 85,637
Under HST
Cost $77,500
HST – 14% 10,850
PST 0
$88,350
Input tax credit 10,850
Net Cost $77,500
Savings $ 8,137
16PEI Real Estate Association
GST/PST and HSTSummary
17PEI Real Estate Association
Contractors will experience tax savings under HST Tax savings can be used to:
• Increase bottom line• Re-invest in business and enhance economy• Reduce prices
Reference:The Impact of Sales Tax Reform on Ontario Consumers: A First Look at the EvidenceMichael Smart (http://www.fin.gov.on.ca/en/taxchange/smart.html)
Benefits of HST
18PEI Real Estate Association
Subject to GST at 5% Real property contracts
Exempt from PST at 10.5% (effective rate) Real property contracts
Real Property ContractsGST/PST – Current Status
Sales
19PEI Real Estate Association
Real Property ContractsHST
Sales
Subject to HST at 14% Real property contracts
20PEI Real Estate Association
Residential Construction New Build or
Substantially RenovatedGST/PST - Current System
Materials Labour Land Other Total
Cost (before tax) 118,589 70,460 39,000 5,883 233,932
GST 5,929 1,950 294 8,173
124,518 70,460 40,950 6,177 242,105
PST 12,451 617 13,068
136,969 70,460 40,950 6,794 255,173
Input Tax Credits -5,929 -1,950 -294 -8,173
Total Cost 131,040 70,460 39,000 6,500 247,000
Profit 13,000
Selling Price 260,000
21PEI Real Estate Association
Residential Construction New Build or
Substantially RenovatedGST/PST - Current System
Note Total
Selling Price $260,000
GST 13,000
GST/HST New Housing Rebate
36% of GST paid (maximum $6,300)
- 4,680
Net Purchase Price $268,320
Tax Paid by Purchaser Net GST ($8,320) + embedded PST
$ 21,388
22PEI Real Estate Association
Residential Construction New Build or
Substantially RenovatedHST
(Profit $ Constant)Materials Labour Land Other Total
Cost (before tax) 118,589 70,460 39,000 5,883 233,932
HST 16,602 5,460 824 22,886
135,191 70,460 44,460 6,707 256,818
PST 0 0 0
135,191 70,460 44,460 6,707 256,818
Input Tax Credits -16,602 -5,460 -824 22,886
Total Cost 118,589 70,460 39,000 5,883 233,932
Profit 13,000
Selling Price 246,93223PEI Real Estate Association
Residential Construction New Build or
Substantially RenovatedHST
(Profit $ Constant)
Totals
Selling Price $246,932
HST 34,570
GST/HST New Housing Rebate – 36% of federal part of HST (maximum $6,300)
-4,445
Net Purchase Price $277,057
Percent Increase in Price 3.3%
Tax Paid by Purchaser – Net HST (no embedded PST)
$ 30,125
24PEI Real Estate Association
ProvincialNew Housing Rebate
Jurisdictional Comparison
Maximum Housing Value
Maximum ProvincialRebate Note
NL N/A N/A No program
PE N/A N/A No program
NS $160,000 $3,000 Only available to first time home buyers
NB N/A N/A No program
ON $400,000 $24,000Maximum $16,080 for owner-built home where
no HST paid on land
BC $850,000 $42,500Maximum $28,475 for owner-built home where
no HST paid on land
25
Non-Residential ConstructionNew Build
GST/PST Tax System
26
Materials Labour Land Other Total
Cost before taxes 342,760 202,500 112,500 16,969 674,729
GST 17,138 5,625 848 23,611
359,898 202,500 118,125 17,817 698,340
PST 35,990 1,781 37,771
395,888 202,500 118,125 19,598 736,111
Input Tax Credits -17,138 -5,625 -848 -23,611
Total 378,750 202,500 112,500 18,750 712,500
Profit 37,500
Selling price 750,000PEI Real Estate Association
Notes Totals
Selling price $ 750,000
GST 37,500
Total purchase price 787,500
ITC (Assuming purchaser is a Registrant)
- 37,500
Net paid by purchaser $ 750,000
Tax paid by purchaser (net) Embedded PST $ 37,771
Non-Residential ConstructionNew Build
GST/PST Tax System
27PEI Real Estate Association
Non-Residential ConstructionNew Build
HST(Profit % Constant)
28
Materials Labour Land Other TotalCost before taxes 342,760 202,500 112,500 16,969 674,729 HST 47,986 15,750 2,376 66,112
390,746 202,500 128,250 19,345 740,841
PST 0 0 0
390,746 202,500 128,250 19,345 740,841
Input Tax Credits -47,986 -15,750 -2,376 -66,112
Total 342,760 202,500 112,500 16,969 674,729
Profit 35,512
Selling price 710,241
PEI Real Estate Association
Notes Totals
Selling price $ 710,241
HST 99,434
Total purchase price 809,675
ITC (Assuming purchaser is a Registrant)
- 99,434
Net price to purchaser $ 710,241
Percent decrease in price - 5.3%
Tax paid by purchaser (net) $ 99,434 HST – $99,434 ITC $ 0
Non-ResidentialConstructionNew Build
HST(Profit % Constant)
29PEI Real Estate Association
Transitional rules Prevent double taxation Prevent gaps in the application of tax Information on transitional rules is available in our tax guide RTG:185
Implementation of the Harmonized Sales Tax in Prince Edward Island
GST/PST to HST Transitional Rules for
Residential Construction
PEI Real Estate Association 30
Information on transitional rules is also available from the Canada Revenue Agency:
• GST/HST Notice No. 279 Harmonized Sales Tax for Prince Edward Island (P.E.I.) – Questions and Answers on Transitional Rules for Housing and Other Real Property Situated in P.E.I.
• GST/HST Notice No. 278 Harmonized Sales Tax for Prince Edward Island –Questions and Answers on General Transitional Rules for Personal Property and Services
• GST/HST info sheets http://www.cra-arc.gc.ca/menu/GHIS-e.html
Transitional Rules for Residential
Construction (cont’d)
PEI Real Estate Association 31
No HST Where ownership or possession of the housing transferred prior to April 1, 2013
or Where ownership and possession of the home transferred after April 1, 2013
under written agreement of purchase and sale entered into on or before November 8, 2012,
• Referred to as “grandparented” (does not apply to all housing – see GST/HST Info Sheet GI144)
HST Where ownership and possession of the housing transferred on or after April 1,
2013; and Written agreement of purchase and sale was entered into on or after November
9, 2012,
GST/PST to HST TransitionApplication of HST to Sales
of New or Substantially Renovated Housing
PEI Real Estate Association 32
Paid by builder Applies only to grandparented sales Does not apply to sales of traditional apartment buildings, duplexes, mobile homes or
floating homes Approximates PST on materials purchased after March 2013
• HST paid and recovered through input tax credits
New and substantially renovated single unit housing• Rate based on percent complete on April 1, 2013• Rate decreases as percent completion increases
Residential condominiums• Flat rate of 4.5% of the greater of consideration or fair market value of the condominium as determined
for GST purposes
See GST/HST Info Sheet GI-150
GST/PST to HST TransitionTransitional Tax Adjustment
(To Avoid Tax Gap)
PEI Real Estate Association 33
Available to purchaser or the builder depending on the circumstances. Applicable to new home purchases where HST is charged or where transitional tax
adjustment (TTA) applies to sale of grandparented residential condominium. Approximates PST paid on materials purchased before April 2013 and included in
the purchase price of the home. Purchaser pays the 9% provincial component of HST on the purchase of the home
after March 2013 or builder accounts for TTA. Available to individuals purchasing new single unit housing, including detached,
semi-detached and attached (row) housing. Not available for owner-built homes, mobile homes or floating homes.
GST/PST to HST TransitionPST Transitional New
Housing Rebate(To Avoid Double Tax)
PEI Real Estate Association 34
Available to builder of newly constructed or substantially renovated residential condominiums and rental housing.,
See GST/HST Info Sheet GI-151
PST Transitional New Housing Rebate
(cont’d)
PEI Real Estate Association 35
36
GST/PST to HST TransitionTransitional Rules for
Services
GST at 5% will apply when 90% or more of a taxable service is performed before April 1, 2013.
HST at 14% will apply to any consideration that becomes due, or is paid without having become due, on or after February 1, 2013 where the consideration relates to the portion of a taxable service performed on or after April 1, 2013.
PEI Real Estate Association
37
GST/PST to HST TransitionTransitional Rules for
Services
Real Estate Agents
The general transitional rules for services will apply to real estate commissions.
Example• A real estate agent enters into a listing agreement with a client on February 4, 2013. A firm offer
of purchase/sale is made on April 20, 2013 and the closing is May 15, 2013.• The real estate commission is $12,000.• The real estate agent determines that 40 percent of the service was provided on or after April 1,
2013.• The agent will bill the client for $7,200 commission plus 5% GST and $4,800 commission plus
14% HST.
PEI Real Estate Association
Department of Finance, Energy and Municipal Affairs• [email protected] - Email• www.peihst.ca - Website
Canada Revenue Agency (CRA)• www.cra-arc.gc.ca/gsthst • Telephone 1-800-959-5525• For all GST/HST Info sheets http://www.cra-arc.gc.ca/menu/GHIS-e.html
HSTAdditional Information
38PEI Real Estate Association