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HST Information

Prince Edward IslandReal Estate Association

February 22, 2013

HST Facts Tax System Comparison Real Property Contracts, GST/PST – Current Status Real Property Contracts, HST Residential Construction, GST/PST example Residential Construction, HST example Non-Residential Construction, GST/PST example Non-Residential Construction, HST example GST/PST to HST Transition HST Additional Information

Presentation

2PEI Real Estate Association

Effective April 1st, 2013 HST rate - 14%

• Federal component - 5%• Provincial component – 9%

Point of sale rebates• Heating oil, children’s clothing, children’s footwear and books

Rebate program for low and modest income households Administered by the Canada Revenue Agency In general, GST rules will apply to HST

HST Facts


Input Tax Credits (ITCs) Input tax credits (ITCs) are credits for the GST/HST paid

or payable on most property and services acquired for consumption, use or supply in a commercial activity.

ITCs are generally based on extent of the property or service in commercial activities.

To claim an ITC, a person must be a GST/HST registrant.

ITCs are claimed on a GST/HST return.

HST Facts

PEI Real Estate Association 4

Supplies A ‘supply’ is the provision of property or services in any manner Taxable, zero-rated or exempt Small suppliers [≤$30,000 revenue ($50,000 for public service bodies) from

taxable supplies, including zero-rated supplies]

Taxable Supplies Taxable at the HST rate for the participating province (PEI - 14%) where

they are made in PEI and are not zero rated Businesses who make taxable supplies can claim “input tax credits” for tax

paid or payable on inputs acquired to make those supplies

HST FactsApplication of HST


Zero-rated Supplies Taxable at the rate of 0% Businesses that are GST/HST registrants who make zero-rated supplies

can claim “input tax credits” for the GST/HST paid or payable on inputs acquired to make those supplies.

Zero-rated supplies are effectively tax free



Exempt Supplies Exempt supplies are not subject to the GST/HST Businesses making exempt supplies cannot claim “input tax credits” for the

tax paid on inputs acquired to make those supplies Tax paid on inputs is an additional cost of doing business



Exempt Suppliers and Small Suppliers(*): The business will not be able to claim input tax credits for

HST paid by the business• HST expense (e.g., HST applied to electricity, rent, etc.) will increase

costs for these businesses which may have to be passed on to customers

(*) Small suppliers [i.e., those whose revenue from taxable supplies, including zero-rated supplies is ≤$30,000 ($50,000 for public service bodies) who choose not to register for GST/HST].

HST Facts


Provincial Sales Tax (PST) – A Cascading Tax Example Tourist accommodation operator pays PST on items such as

construction materials, repairs and maintenance, computer equipment and systems, accounting fees, office supplies and accommodation supplies used in providing guest accommodations

Operator embeds the PST paid into the cost of accommodations Customer pays GST and PST on cost of accommodations Customer pays tax on tax

• GST and PST on the tax embedded into the cost of accommodations• PST on top of GST on cost of accommodations

Tax System Comparison


Harmonized Sales Tax (HST) – A Value Added Tax Example Tourist accommodation operator pays HST on items such as

construction materials, repairs and maintenance, computer equipment and systems, accounting fees, office supplies and accommodation supplies used in providing guest accommodations

Operator receives an input tax credit for all HST paid Operator does not embed tax into the cost of accommodations Customer pays HST on cost of accommodations Customer does not pay tax on tax

Tax System Comparison


Subject to GST at 5% Purchase of building materials used in real property contracts Most purchases of land Subcontracts Purchase of most goods and services used by contractors in their

operations

Real Property ContractsGST/PST – Current Status

Expenses


Subject to PST at 10.5% (effective rate) Purchase of building materials used in real property contracts Purchase of goods and services used by contractors in their

operations

Exempt from PST Purchase of land Subcontracts (*)

(*) Subcontractor does have PST embedded in cost of contract


Expenses


Input tax credits for GST (5%) payable on purchases Purchase of building materials used in real property contracts Purchase of land Subcontracts Purchase of goods and services used by contractors in their operationsPST at 10.5 % (effective rate) Embedded in Contract Purchase of building materials used in real property contracts Purchase of goods and services used by contractors in their operations


Expenses


Real Property ContractsHST

Expenses

Subject to HST at 14% Purchase of building materials used in real property contracts Most purchases of land Subcontracts Purchase of most goods and services used by contractors in their

operations


Input tax credits for HST (14%) payable on purchases Purchase of building materials used in real property contracts Purchase of land Subcontracts Purchase of goods and services used by contractors in their

operations


Expenses



ExampleExpense Type: Building materials

Under GST/PST

Cost $77,500

GST – 5% 3,875

PST – 10% 8,137

89,512

Input tax credit 3,875

Net Cost $ 85,637

Under HST

Cost $77,500

HST – 14% 10,850

PST 0

$88,350

Input tax credit 10,850

Net Cost $77,500

Savings $ 8,137


GST/PST and HSTSummary


Contractors will experience tax savings under HST Tax savings can be used to:

• Increase bottom line• Re-invest in business and enhance economy• Reduce prices

Reference:The Impact of Sales Tax Reform on Ontario Consumers: A First Look at the EvidenceMichael Smart (http://www.fin.gov.on.ca/en/taxchange/smart.html)

Benefits of HST


http://www.fin.gov.on.ca/en/taxchange/smart.html�

Subject to GST at 5% Real property contracts

Exempt from PST at 10.5% (effective rate) Real property contracts


Sales



Sales

Subject to HST at 14% Real property contracts


Residential Construction New Build or

Substantially RenovatedGST/PST - Current System

Materials Labour Land Other Total

Cost (before tax) 118,589 70,460 39,000 5,883 233,932

GST 5,929 1,950 294 8,173

124,518 70,460 40,950 6,177 242,105

PST 12,451 617 13,068

136,969 70,460 40,950 6,794 255,173

Input Tax Credits -5,929 -1,950 -294 -8,173

Total Cost 131,040 70,460 39,000 6,500 247,000

Profit 13,000

Selling Price 260,000



Substantially RenovatedGST/PST - Current System

Note Total

Selling Price $260,000

GST 13,000

GST/HST New Housing Rebate

36% of GST paid (maximum $6,300)

- 4,680

Net Purchase Price $268,320

Tax Paid by Purchaser Net GST ($8,320) + embedded PST

$ 21,388



Substantially RenovatedHST

(Profit $ Constant)Materials Labour Land Other Total

Cost (before tax) 118,589 70,460 39,000 5,883 233,932

HST 16,602 5,460 824 22,886

135,191 70,460 44,460 6,707 256,818

PST 0 0 0

135,191 70,460 44,460 6,707 256,818

Input Tax Credits -16,602 -5,460 -824 22,886

Total Cost 118,589 70,460 39,000 5,883 233,932

Profit 13,000

Selling Price 246,93223PEI Real Estate Association


Substantially RenovatedHST

(Profit $ Constant)

Totals

Selling Price $246,932

HST 34,570

GST/HST New Housing Rebate – 36% of federal part of HST (maximum $6,300)

-4,445

Net Purchase Price $277,057

Percent Increase in Price 3.3%

Tax Paid by Purchaser – Net HST (no embedded PST)

$ 30,125


ProvincialNew Housing Rebate

Jurisdictional Comparison

Maximum Housing Value

Maximum ProvincialRebate Note

NL N/A N/A No program

PE N/A N/A No program

NS $160,000 $3,000 Only available to first time home buyers

NB N/A N/A No program

ON $400,000 $24,000Maximum $16,080 for owner-built home where

no HST paid on land

BC $850,000 $42,500Maximum $28,475 for owner-built home where

no HST paid on land

25

Non-Residential ConstructionNew Build

GST/PST Tax System

26

Materials Labour Land Other Total

Cost before taxes 342,760 202,500 112,500 16,969 674,729

GST 17,138 5,625 848 23,611

359,898 202,500 118,125 17,817 698,340

PST 35,990 1,781 37,771

395,888 202,500 118,125 19,598 736,111

Input Tax Credits -17,138 -5,625 -848 -23,611

Total 378,750 202,500 112,500 18,750 712,500

Profit 37,500

Selling price 750,000PEI Real Estate Association

Notes Totals

Selling price $ 750,000

GST 37,500

Total purchase price 787,500

ITC (Assuming purchaser is a Registrant)

- 37,500

Net paid by purchaser $ 750,000

Tax paid by purchaser (net) Embedded PST $ 37,771


GST/PST Tax System



HST(Profit % Constant)

28

Materials Labour Land Other TotalCost before taxes 342,760 202,500 112,500 16,969 674,729 HST 47,986 15,750 2,376 66,112

390,746 202,500 128,250 19,345 740,841

PST 0 0 0

390,746 202,500 128,250 19,345 740,841

Input Tax Credits -47,986 -15,750 -2,376 -66,112

Total 342,760 202,500 112,500 16,969 674,729

Profit 35,512

Selling price 710,241

PEI Real Estate Association

Notes Totals

Selling price $ 710,241

HST 99,434

Total purchase price 809,675

ITC (Assuming purchaser is a Registrant)

- 99,434

Net price to purchaser $ 710,241

Percent decrease in price - 5.3%

Tax paid by purchaser (net) $ 99,434 HST – $99,434 ITC $ 0

Non-ResidentialConstructionNew Build

HST(Profit % Constant)


Transitional rules Prevent double taxation Prevent gaps in the application of tax Information on transitional rules is available in our tax guide RTG:185

Implementation of the Harmonized Sales Tax in Prince Edward Island

GST/PST to HST Transitional Rules for

Residential Construction


http://www.gov.pe.ca/photos/original/hst_trans_rules.pdf�

Information on transitional rules is also available from the Canada Revenue Agency:

• GST/HST Notice No. 279 Harmonized Sales Tax for Prince Edward Island (P.E.I.) – Questions and Answers on Transitional Rules for Housing and Other Real Property Situated in P.E.I.

• GST/HST Notice No. 278 Harmonized Sales Tax for Prince Edward Island –Questions and Answers on General Transitional Rules for Personal Property and Services

• GST/HST info sheets http://www.cra-arc.gc.ca/menu/GHIS-e.html

Transitional Rules for Residential

Construction (cont’d)


http://www.cra-arc.gc.ca/E/pub/gi/notice279/notice279-e.pdf�



http://www.cra-arc.gc.ca/menu/GHIS-e.html�

No HST Where ownership or possession of the housing transferred prior to April 1, 2013

or Where ownership and possession of the home transferred after April 1, 2013

under written agreement of purchase and sale entered into on or before November 8, 2012,

• Referred to as “grandparented” (does not apply to all housing – see GST/HST Info Sheet GI144)

HST Where ownership and possession of the housing transferred on or after April 1,

2013; and Written agreement of purchase and sale was entered into on or after November

9, 2012,

GST/PST to HST TransitionApplication of HST to Sales

of New or Substantially Renovated Housing


Paid by builder Applies only to grandparented sales Does not apply to sales of traditional apartment buildings, duplexes, mobile homes or

floating homes Approximates PST on materials purchased after March 2013

• HST paid and recovered through input tax credits

New and substantially renovated single unit housing• Rate based on percent complete on April 1, 2013• Rate decreases as percent completion increases

Residential condominiums• Flat rate of 4.5% of the greater of consideration or fair market value of the condominium as determined

for GST purposes

See GST/HST Info Sheet GI-150

GST/PST to HST TransitionTransitional Tax Adjustment

(To Avoid Tax Gap)


Available to purchaser or the builder depending on the circumstances. Applicable to new home purchases where HST is charged or where transitional tax

adjustment (TTA) applies to sale of grandparented residential condominium. Approximates PST paid on materials purchased before April 2013 and included in

the purchase price of the home. Purchaser pays the 9% provincial component of HST on the purchase of the home

after March 2013 or builder accounts for TTA. Available to individuals purchasing new single unit housing, including detached,

semi-detached and attached (row) housing. Not available for owner-built homes, mobile homes or floating homes.

GST/PST to HST TransitionPST Transitional New

Housing Rebate(To Avoid Double Tax)


Available to builder of newly constructed or substantially renovated residential condominiums and rental housing.,

See GST/HST Info Sheet GI-151

PST Transitional New Housing Rebate

(cont’d)


36

GST/PST to HST TransitionTransitional Rules for

Services

GST at 5% will apply when 90% or more of a taxable service is performed before April 1, 2013.

HST at 14% will apply to any consideration that becomes due, or is paid without having become due, on or after February 1, 2013 where the consideration relates to the portion of a taxable service performed on or after April 1, 2013.


37

GST/PST to HST TransitionTransitional Rules for

Services

Real Estate Agents

The general transitional rules for services will apply to real estate commissions.

Example• A real estate agent enters into a listing agreement with a client on February 4, 2013. A firm offer

of purchase/sale is made on April 20, 2013 and the closing is May 15, 2013.• The real estate commission is $12,000.• The real estate agent determines that 40 percent of the service was provided on or after April 1,

2013.• The agent will bill the client for $7,200 commission plus 5% GST and $4,800 commission plus

14% HST.


Department of Finance, Energy and Municipal Affairs• [email protected] - Email• www.peihst.ca - Website

Canada Revenue Agency (CRA)• www.cra-arc.gc.ca/gsthst • Telephone 1-800-959-5525• For all GST/HST Info sheets http://www.cra-arc.gc.ca/menu/GHIS-e.html

HSTAdditional Information


http://[email protected]/�

http://www.peihst.ca/�

http://www.cra-arc.gc.ca/menu/GHIS-e.html�

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