In less than one month, BC and Ontario will experience an overhaul in their tax system with the introduction of the Harmonized Sales Tax (HST) on July 1, 2010.
Many of our visitors still have a few questions about the new HST and how this will affect home buyers and existing home owners.
To help us make sense of these changes we asked Frank Bilotta, Associate Partner and Tax Specialist at SBLR Chartered Accountants, to answer our questions.
(Frank operates in Ontario, so answers are specific to Ontario law)
What exactly will change on July 1, 2010?
Frank: On July 1st the 13% Harmonized Sales Tax (HST) will come into full effect in Ontario. The HST is a combination of the 5% federal Goods and Services Tax (GST) and the 8% Ontario Retail Sales Tax (RST or PST). There will no longer be a separate Ontario retail sales tax. (The new Harmonized Sales Tax in BC will be applied at a rate of 12%.)
The biggest change is to services that were not subject to the Ontario PST, but will now be subject to an additional 8% in taxes under HST.
What type of services are we talking about?
Frank: Well, actually, quite a few common services will be affected. Consumers are most likely to notice an increase in the price of gasoline and heating fuels. Electricity will no longer be exempt from provincial sales tax, nor will tobacco. Personal services like haircuts, membership fees for clubs and gyms, magazines, and taxi fares will all be affected.
With regard to services associated with buying a home or home ownership items such as renovation services, legal fees, real estate agent commissions, landscaping, land survey reports, home inspections and cleaning – will all be subject to the new HST.
Will anything remain exempt?
Frank: Not a lot. Children’s clothing and footwear, children’s car seats, newspapers, books, diapers, feminine hygiene products and meals under $4.00, will remain exempt from the provincial portion of the single sales tax.
Basic groceries, rent, condo fees, prescription drugs, and medical devices which are currently exempt from both PST and GST, will remain exempt from HST.
What about home sales?
Frank: Only newly constructed or substantially renovated homes will be subject to HST. For purchases of new homes that straddle the implementation date of July 1, 2010, the provincial portion of the HST will apply depending on when the written agreements of purchase and sale were entered into and when ownership or possession are transferred.
For contracts signed before June 18, 2009, HST will NOT apply. For contracts signed on or after June 28, 2009, where both ownership and possession are transferred after June 30, 2010, HST will apply. For all contracts signed on or after July 1, 2010, HST will apply.
So resale homes will not be subject to the HST?
Frank: No, although real estate transaction fees will be taxed along with legal fees, as I mentioned earlier.
It sounds like home ownership is going to get a lot more expensive after July 1st. What’s the up side to all of this?
Frank: HST will result in the removal of the hidden PST which is buried in the price of the final goods and services. This should result in lower costs incurred by businesses and potentially allows savings to be passed onto consumers. The new tax will also make things easier for businesses currently charging both GST and PST; one sales tax is all they need to worry about now.
For consumers, the Ontario government has allowed for certain point of sale rebates and transition credits to offset the additional cost of the HST.
Tell me more about the housing rebates that will be offered.
Frank: Under the new HST rules, individuals will be eligible for the Ontario new housing rebate which is 6% of the value of the house, up to a maximum of $24,000.
This rebate is in addition to the existing GST New Housing Rebate, which remains at 5% and is phased out for house values greater than $350,000.
What if the value of the house exceeds $400,000?
Frank: Unfortunately, the rebate is capped at $24,000, but there is no reduction of the rebate if the value of the house exceeds $400,000. Unlike the rebate for the GST portion which is clawed back.
The chart below might help to explain this.
|
Price of New Home (before GST/HST) |
Federal Portion (price x 36% x 5%) |
Ontario Portion (price x 6%) |
Total Rebate |
|
$350,000 |
$6,300 |
$21,000 |
$27,300 |
|
$400,000 |
$3,150 |
$24,000 |
$27,150 |
|
> $450,000 |
$0 |
$24,000 |
$24,000 |
When will rebates be paid out?
Frank: The Ontario rebate will be administered by the Canada Revenue Agency along with the GST rebate.
What if a homeowner is in the process of renovating their kitchen? Will they be charged HST even though the work started before July 1, 2010?
Frank: HST will apply on the portion of the progress payments on contracts to construct, renovate, alter or repair real property (this excludes newly constructed or substantially renovated housing) relating to work completed from July 1, 2010 onward. For example, if 60% of the work related to a progress payment is completed before July 1, 2010 and 40% is completed after July 1st, HST will apply to the 40% portion.
Who determines what percentage of the work is complete?
Frank: With July 1st fast approaching, the rules for HST have not been finalized into law and we have not been given any guidance as to whether there is going to be a specific rule to determine this. What is most likely to happen is that the facts of each specific situation will determine the work completed before and after July 1st. The supplier of the services, who will be responsible for charging and collecting the HST, will have to ensure they have the necessary documentation/proof available to substantiate their determination under a CRA review of their GST/HST account.
What should potential home buyers and existing home owners do to prepare for the price increases caused by the new HST?
Frank: If you’re worried about the price increases, I suggest you speak with an accounting professional to see how these changes will affect your own personal situation. The most important thing is to be aware of the changes that are coming so you can adjust your spending plans and budget accordingly.
Where can consumers find more information about the new HST?
Frank: There are a lot of information sources out there. The Canada Revenue Agency website is likely to have the most accurate and up-to-date content. But if you can’t find what you’re looking for online, speak to your accountant.
HST chargeable common items
Here’s a list of common products and services that were subject to 5% GST before July 1, 2010, but will be charged 13% HST in Ontario after July 1st:
- Dry cleaning
- Electricity and heating
- Internet access services
- Home service calls (i.e. electrician, plumber, carpenter)
- Landscaping, lawn care and private snow removal
- Hotel rooms
- Taxis
- Camping sites
- Domestic air rail and bus travel originating in Ontario
- Magazine subscriptions
- Home renovations (i.e. installation for a new kitchen, or painting services)
- Gasoline/Diesel
- Real estate commissions
- Massage therapy
- Vitamins
- Green fees for golf
- Gym membership fees
- Sport/leisure lessons/classes (i.e. dance, karate, hockey, soccer, sewing, etc) (some exemptions apply)
- Hall rental fees
- Fitness trainer
- Hair stylist
- Esthetician services
- Funeral fees
- Legal fees
- Cigarettes and other tobacco purchases
- Nicotine replacement products
To learn more about the new tax changes go to www.ontario.ca/taxchange in Ontario and www.gov.bc.ca in British Columbia.
Frank Bilotta, CGA, Associate Partner
SBLR LLP Chartered Accountants
416-488-2345 x 269
fbilotta@sblr.ca
www.sblr.ca
Frank is a Tax Specialist with SBLR, a full-service accounting and business advisory firm located in mid-Toronto. With 9 partners and over 40 team members, including a full-time senior tax department, SBLR specializes in providing creative income tax solutions and high-impact growth and exit strategies for profitable, privately-held companies.
SBLR and RateSupermarket.ca do not accept any responsibility for the contents of this article or for the use thereof. Furthermore, SBLR and RateSupermarket.ca do not accept any contractual, tortuous or other form of liability for the contents or for any consequences arising from its use.
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