GST: You May Have to Pay 6 or Even 7 Percent in 2008
If you purchased a pre-sale home, townhouse, or condominium in the past few years and it hasn't completed yet you might have been thinking you could save 1% if it completed after the new year. It looks like this is not the case. The British Columbia Real Estate Association sent out the following memo in regards to the reduction in the GST as of January 1st, 2007. Take a look, you could end up paying 6 or even 7 percent depending on when you entered into the contract to purchase the home.
GST Reduction
On October 30, 2007, the Government of Canada announced in its Economic Statement that it proposes to reduce the GST rate by one percentage point from 6% to 5%, effective January 1, 2008. The change requires a legislative amendment, which is expected to be made before the end of 2007.
Potential Impact
Over the longer term, the GST reduction that takes effect January 1, 2008 will yield more demand for newly constructed units due to a lower after-tax price. However, it is plausible that REALTORS® will experience fewer sales of already completed new spec homes, or new condominium inventory during the last two months of 2007 as buyers push their decision to purchase into the new year.
This impact will be mitigated by strong demand for and low inventory of new and unoccupied units. Additionally, the GST savings for buyers will be partially offset by any price increase that may occur through to the end of 2007 and into 2008. While buyers will benefit from a lower GST by waiting, the tax may end up being applied to a higher purchase price for the same home.
Further minimizing the impact on new home sales is that the reduction in GST depends on the completion (transfer of ownership) and not the Agreement of Purchase date for a new home. If the home is completed after January 1, 2008, the new 5 per cent GST applies.
Transition
The following information is an excerpt from the Annex to the 2007 Economic Statement. They are transitional rules that will apply in respect of sales of real property to determine whether the rate of 6% or the rate of 5% will apply.
Ownership or Possession Transferred before January 1, 2008: Generally, the 6% rate will apply to all of the consideration for a supply by way of sale of real property if ownership of the property, or possession of it under the agreement of purchase and sale, is transferred to the buyer before January 1, 2008.
Ownership and Possession Transferred on or after January 1, 2008: The 5% rate will apply to all of the consideration for a supply by way of sale of real property if both ownership of the property and possession of it under the agreement are transferred to the buyer on or after January 1, 2008. Note the special transitional rule for new residential housing below.
Sales of New Housing under Written Agreements Entered Into on or Before October 30, 2007 Where Both Ownership and Possession Transferred on or After January 1, 2008. The Following Rules Apply:
- For sales of houses, apartment buildings and other residential complexes made pursuant to an agreement, evidenced in writing, entered into on or before October 30, 2007 but after May 2, 2006, the 6% rate will apply to all of the consideration.
- For sales of houses, apartment buildings and other residential complexes made pursuant to an agreement, evidenced in writing, entered into on or before May 2, 2006, the 7% rate will apply to all of the consideration.
- In both of these circumstances, the purchaser of the residential complex will be entitled to file a claim directly with the Canada Revenue Agency to be paid a Transitional Rebate that reflects the GST rate reduction to 5% , net of any corresponding rebate adjustment. Unlike the regular GST New Housing Rebates, the builder will not be allowed to pay or credit the Transitional Rebate against tax owing by the purchaser and then claim it as a deduction from net tax.
Well isn't that interesting. What do you think?
Matthew Collinge: www.604homes.com ~ Royal LePage Westside