February 17, 2012
B.C. Announces HST-PST Transitional Measures
The British Columbia and federal governments today announced transitional measures for the province’s return to provincial sales tax (PST) and goods and services tax (GST) from harmonized sales tax (HST). The announcements say B.C. will return to GST and PST on April 1, 2013.
The federal announcement includes general transitional rules that describe how and when the HST would cease to apply to transactions that straddle April 1, 2013.
B.C.’s announcement includes transitional measures relating to new home sales, including the transitional rules that will apply when the construction and sale of a new home straddles April 1, 2013. These rules include an expanded new housing rebate for new home sales and a provincial grant effective April 1, 2012 for sales of certain recreational properties.
This TaxNewsFlash-Canada summarizes the federal and B.C. announcements.
Federal transitional rules
Goods and services
Goods and services brought
The B.C. component of the HST would also not apply to consideration that becomes due or is paid after March 31, 2013, for a service or intangible personal property supplied in a non-participating province to a resident of B.C. who acquires the service or intangible personal property for consumption, use or supply in B.C.
The B.C. component of the HST would also not apply to a specified motor vehicle or commercial goods brought into B.C. from a place outside Canada after March 31, 2013.
Imported taxable supplies
The B.C. component of the HST would not apply to any imported taxable supply made after March 31, 2013, nor to an imported taxable supply made before April 1, 2013 to the extent the consideration for that supply becomes due, or is paid without having become due, after March 31, 2013.
and employee/partner rebates
In these cases, the amount of tax, the credit or the rebate is calculated by multiplying the amount determined for income tax purposes by a specified factor. These factors and rates would be adjusted to reflect B.C.’s exit from the HST.
Refunds and rebates
New limitations would, however, apply in certain circumstances to reflect B.C.’s exit from the HST system, particularly where the event giving rise to the relief occurs after March 31, 2013. For example, no rebate of the B.C. component of the HST would be available for tangible personal property (i.e., goods) removed from B.C. after March 31, 2013.
· If the good is returned or exchanged and a refund is given, a refund of HST would be available on the amount refunded provided that a credit or debit note is issued.
· If an exchange is made and no refund is given (i.e., no credit or debit note is issued), there would be no HST refund.
If a taxation year or reporting period of a financial institution begins before April 1, 2013 and ends on or after that date, the financial institution would generally be required to determine its liability for the B.C. component of the HST for the taxation year or reporting period on an apportionment basis. The apportionment would be based upon the ratio of the number of days in the taxation year or reporting period that are before April 1, 2013 to the total number of days in the taxation year or reporting period.
Small businesses and public service bodies
As a result of the elimination of the HST in B.C., the remittance rates for supplies made through permanent establishments in B.C. and for supplies made in B.C. would generally no longer apply after B.C.’s exit from the HST. Instead, the remittance rates applicable to such supplies would be those that currently apply to supplies made through permanent establishments in non-participating provinces and to supplies made in non-participating provinces.
These revised remittance rates would apply for reporting periods of taxpayers using the methods that begin after March 31, 2013. For reporting periods that begin before April 1, 2013 and end after March 31, 2013, the current remittance rates for B.C. would apply to consideration that becomes due, or is paid without having become due, before April 1, 2013, and the revised remittance rates would apply to the remaining consideration.
Public service bodies
However, for the claim period of a person that includes March 31, 2013, a PSB rebate using a PSB rebate rate attributable to a PSB resident in B.C. could be claimed with respect to the provincial component of the HST if that tax became payable by the PSB, was deemed to have been paid or collected by the PSB, or was required to be added to net tax of the PSB, before April 1, 2013.
of real property
The transitional rules for deemed self-supplies of real property are as follows:
· The HST would apply to a self-supply of real property deemed to have been made by way of sale before April 1, 2013.
· The HST would not apply (and only GST would apply) to a self-supply of real property deemed to have been made by way of sale after March 31, 2013.
Transitional tax adjustment
This transitional tax adjustment would continue to apply only where tax becomes payable on the home before April 1, 2013.
Transitional housing rebate
The transitional housing rebate provides relief in respect of PST embedded in the home for construction carried out prior to July 1, 2010 in situations where the HST or the transitional tax adjustment would apply. This rebate could currently be calculated using the “floor space method” or the “selling price method”.
As intended, the transitional housing rebate would continue to be available in respect of homes only where the HST or the transitional tax adjustment applies, as the case may be. Therefore, as of February 17, 2012, builders would not be eligible to claim the rebate before the earlier of the day the HST or the day the transitional tax becomes payable in respect of the home.
B.C. PST transitional rules
The general transitional rules for the PST will generally mirror the federal HST transitional rules.
Generally, PST will apply where tax becomes payable on or after April 1, 2013. Tax in respect of sales of taxable goods and services will generally become payable at the earlier of the time the consideration becomes due or the time the consideration is paid without becoming due. When consideration becomes due will be determined in a manner consistent with the federal rules regarding consideration.
B.C. says detailed PST transitional rules for specific types of transactions, including goods brought, sent or delivered into British Columbia and goods used in the improvement of real property, will be made available as soon as possible.
B.C. also says detailed information for persons selling goods and services who will be required to collect and remit the PST will be made available as soon as possible.
B.C. will administer the PST and the PST transitional rules.
B.C.’s transitional rules for new home sales
Builders will be asked to pay or credit the enhanced portion of the rebate to the purchaser where they have agreed to pay or credit the existing B.C. new housing rebate.
The existing new rental housing rebate will also be enhanced so that the rebate will be calculated as 71.43% of the provincial component of the HST paid, up to a maximum of $42,500.
In addition, purchasers of new secondary vacation or recreational homes outside the Greater Vancouver and Capital regional districts priced up to $850,000 will be eligible to claim a provincial grant of up to $42,500, effective April 1, 2012.
for new home sales
B.C.’s portion of the HST will no longer apply to newly built homes where construction begins on or after April 1, 2013. Builders will once again pay 7% PST on their building materials. On average, about 2% of the home’s final price will again be embedded PST.
For newly built homes where construction begins before April 1, 2013, but ownership and possession transfer after, purchasers will not pay the 7% provincial portion of the HST. Instead, purchasers will pay a temporary, transitional provincial tax of 2% on the full house price. Builders will receive temporary housing transition rebates to offset PST on materials to help prevent double-taxation on homebuyers.
B.C. transition tax
· the HST does not apply to the sale (GST applies)
· the construction or substantial renovation of the new housing is 10% or more completed as of April 1, 2013, and
· ownership or possession of the new housing transfers, or a deemed sale of the new housing (i.e., self‐supply) occurs, before April 1, 2015.
Self-supply of new
In cases where the builder is required to pay GST on a self‐supply made on or after April 1, 2013 and the construction or substantial renovation of the housing is more than 10% completed as of April 1, 2013, the builder will be required to pay the B.C. transition tax of 2% calculated on the fair market value of the housing. The transition tax will become payable on the day that the self‐supply occurs.
For builders who are required to self‐assess and pay the B.C. transition tax on a self‐supply of new housing on or after April 1, 2013, the B.C. transition rebate will be calculated on the fair market value under the self‐supply rules and on the degree of completion of the housing as of April 1, 2013.
For these reasons, builders will be required to make certain disclosures to purchasers and to the CRA. B.C. intends to impose penalties on builders for failing to comply with the disclosure requirements.
Information is current to February 17, 2012. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500.
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