HST change likely to delay new-home sales in BC until its elimination
Plans to remove the HST and return to a provincial sales tax mixed with the Goods and Services Tax will probably cause some potential buyers of new homes in British Columbia to delay purchases until 2013, Central 1 Credit Union forecasts.
In a news release Thursday, Central 1 economist Bryan Yu said: "People looking at new homes priced over $525,000 may very well wait until the tax changes lower the 12 per cent hit they face."
The HST added provincial tax to new housing on top of GST and $525,000 was the upper limit for a rebate program intended to add no additional tax on homes.
Yu is forecasting that B.C.'s total home sales through the Multiple Listing Service will reach 88,200 units by the end of this year, which is down one per cent from 2010's sales mark.
However, while resale home transactions are forecast to end the year 4.7 per cent ahead of 2010, new home transactions will lag by 26 per cent.
While sales will remain soft, the median price will rise 6.8 per cent to $417,000, Yu said.
"The real estate market will remain stable for the next couple years, weighed down by global economic issues, moderate employment and population growth and changes to mortgage insurance rules," Yu said.
Central 1 forecasts that next year total home sales are expected to increase by about 3.4 per cent, driven by higher new home sales. The resale of existing homes will decline.
Meanwhile, the Canadian Real Estate Association released a report Thursday showing that the sale of existing homes across Canada declined 0.5 per cent in August.
On a seasonally adjusted basis, sales totalled to 37,177 units during the month, down from 37,378 in the previous month, the industry group said. However, sales were still up 15.8 per cent from August 2010, on a non-adjusted basis.
The national average home price of $349,916 in August, on a non-adjusted basis, was up 7.7 per cent from a year earlier.
"[Economic] headwinds will likely persist until, and indeed after, fiscal quagmires in the U.S. and Europe are resolved. In the meantime, the Bank of Canada will have ample reason to delay raising interest rates further, which is supportive for the Canadian housing market."
HST and HST Rebates on the Purchase of New Housing.
THE HST
The government of British Columbia implemented the HST on July 1,2010. The HST consists of the combination of the 7% PST and the 5% GST. This combined 12% tax is called the HST.
The HST applies to all purchases of newly built residential homes and substantially renovated homes.
Used (i.e. resale) residential homes are not subject to HST.
REBATES
There are potentially 3 rebates available to purchasers of new housing.
The GST New Housing Rebate or the GST New Residential Rental Rebate will refund up to 36% of the 5% GST. A full rebate is available for homes up to $350,000.00. Between $350,000.00 to $450,000.00 is a gradual pro-rated reduction of the rebate. Homes above $450,000.00 do not qualify for any rebate of the GST.
The second rebate is the BC HST Rebate. The BC HST Rebate is 5% of the purchase price up to a maximum rebate amount of $26,250.00. Any home with a purchase price of over $525,000.00 will have a maximum BC HST Rebate of $26,250.00.
The third potential rebate is the BC PST Transitional Rebate. This rebate is to adjust for PST that was embedded in the construction of new homes before June 30,2010. This rebate only applies to new single family/detached house and does not apply to the purchase of new strata housing.
The BC PST Transitional Rebate will refund up to 2% of the purchase price of a new house depending on the level of completion as of July I, 2010. In a straight forward example, if the house was 100% complete as of July 1,2010 and the purchase price was $600,000.00, then the BC PST Transitional Rebate would be $12,000.00.
IMPORTANT NOTE ABOUT REBATES
This is important to note as, on occasion, clients assume that the above rebates are automatically adjusted for on the statement of adjustments on completion. This is incorrect.
The developer must explicitly set out in the contract that they will adjust for any rebates on the statement of adjustment upon completion. If there is no such clause, then the buyer will need to submit the rebate application themselves and wait to receive the rebate much later in the mail. This can cause problems for the buyers who are relying on the rebate adjustment to complete the purchase.
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