February 23, 2012

H.S.T on your new home - What you want to know!

[caption id="attachment_2046" align="alignright" width="300" caption="Kevin Falcon - H.S.T. Announcement"][/caption]

With Friday’s announcement by Finance Minister Kevin Falcon of the new transition rules for moving H.S.T. back to a P.S.T tax structure, the price of buying a new home now vs. after the switch to P.S.T will be the same. To better understand how this will work, here is the information you want to know!

Background

Prior to the H.S.T tax structure, home buyers paid a 5% G.S.T. on top of the purchase of their home. What many people don’t know is that within the purchase price of their home, they were also paying a 7% P.S.T. on the materials used to construct their home, but not on the labour to install or build the home. This P.S.T. amount was approximately 2% of the total cost of the purchase. With the switch to the H.S.T., a rebate was created to offset the additional P.S.T. that was now also being paid on the labour involved in building a home.

Current Rebate System

Ever since H.S.T. was implemented, the government came out with a credit system called the New Housing Rebate. The rebate provided a credit back to the purchaser that represented 71.43% of the P.S.T portion (7%) of H.S.T. (12%). For this rebate, any home priced over $525,000 (the Threshold amount) would receive a maximum amount back of $26,250 and any home priced under the Threshold of $525,000 would only receive the 71.43% of the P.S.T portion back.

On the construction of a new home where the home owner already owned the property or purchased the property to build a new home, the government adjusted the New Housing Rebate to 67% of the New Housing Rebate amount which equaled a maximum amount back of $17,688.

New Transition Rebates

As of April 1st, 2012, the New Housing Rebates will be adjusted so that the cost of buying and building a new home will be the same end cost whether you buy or build in a H.S.T. or P.S.T. tax structure. The results are as follows:

When buying a new home where the land is included in the transaction, homeowners will receive the same 71.43% back on the P.S.T. portion of H.S.T., however the maximum you can now receive back is $42,500, instead of the previous $26,250. This is a result of the maximum transaction amount increasing from $525,000 to $850,000. This $850,000 amount is supposed to represent the cost of approximately 90% of new homes throughout B.C. The end result is any new home purchased at or below $850,000 will have the same tax implications whether you buy a home in a H.S.T. or P.S.T. Tax era. Any home priced over $850,000 will be heavily subsided but considered a luxury purchase and will receive full rebate on the first $850,000 of the price only.

When building a new home where land is excluded in the purchase price, the rules still remain the same where homeowners can receive 67% of the New Housing Rebate. With the threshold now being increased, homeowners building a home can now receive a rebate of $28,475, a 61% increase from the previous $17,588.

Summary

The resulting need to know information is that building or buying a new home will be less expensive for you as of April 1, 2012 and the same resulting price based on tax implications whether you buy now, or after H.S.T is abolished. For more information or clarification on any questions you may have, please give us a call by calling Brad Cowden at 604-420-5200 ext 215 or check out any of the links below.

Ministry of Finance Tax Information Notice
http://www.pstinbc.com/media/2012_housing_rules_FEB.pdf

P.S.T. in B.C. Website Published by the B.C. Provincial Government
http://www.pstinbc.com/buying_goods/buying_a_home/

B.C. News Release, February 17, 2012 by the Ministry of Finance
http://www2.news.gov.bc.ca/news_releases_2009-2013/2012FIN0006-000165.htm