HST comes into effect this Thursday July 1, 2010. What does this mean for you?

LET'S START WITH THE BASICS:

WHAT HST? The Harmonized Sales Tax (HST) is a new tax introduced by the government, which will harmonize our current Provincial Sales Tax (7% PST) with our Federal Goods and Services Tax (5% GST).

So this ‘new’ tax is essentially just replacing the old PST & GST taxes, and will not have a net difference on the amount of tax paid on most goods. Instead of paying two taxes on the goods and services you buy (7% PST + 5% GST= 12% total tax), you will be paying the same amount of tax but it will have a new name (12% HST).

The kicker with the HST is that it will apply to some goods that were previously exempt from PST (and thus subject only to 5% GST tax). On these PST exempt goods consumers will now have to pay 7% more in taxes. And unfortunately one of these exempt goods is newly constructed or substantially renovated (almost new) housing.

HOW WILL HST IMPACT THE HOME BUYER?

COST OF RESALE HOUSING 

HST does not apply to resale housing. Buyers did not pay GST on resale housing under the old system and they will not pay HST on the price of their new home under the new system

COST OF NEWLY CONSTRUCTED HOUSING 

Sales of newly constructed or substantially renovated homes will be subject to the proposed HST, where both ownership and possession of the homes are transferred after June 30 2010. In these cases the buyer will incur an additional 7% in taxes.

But if you are buying a newly constructed home to use as your primary residence, you may qualify for the BC New Housing Rebate.

WHAT IS THE BC NEW HOUSING REBATE?

The BC New Housing Rebate is a rebate of 71.43% of the provincial component of the HST paid, up to a maximum of $26,250. This rebate is for buyers who buy their new home to use as a primary place of residence. 

The government claims that:

‘On average, the rebate ensures that you won’t pay any additional tax due to harmonization on new homes that cost up to $525,000. If you buy a new home that costs more than that, you’ll pay a little bit more tax than you did before, but you’ll still get the maximum rebate of $26,250.’

But a word of caution to buyers: The government has made these claims assuming that builders will discount the price of homes by the amount of tax savings they will now get (approximated 2%).**  

Click here for more information on the BC New Housing Rebate for home buyers.

** Business owners, such as builders, currently get to write off the 5% GST (but not the PST) they pay on input goods they use to conduct business (eg. building supplies). Under the new HST system, businesses will now be able to write off the full 12% HST in taxes they pay on input goods. The government is assuming that this savings will be passed on to consumers. If you would like more information you can watch this video created by the BC government. 

COST OF BUYING AND SELLING

Buyers and Sellers will incur a 7% increase in costs they pay for real estate services (including realtor commissions, home inspector and lawyer fees)

COST OF OWNING A HOME

HST is also applicable to such things like strata fees, residential heating fuel, commercial rents, smoke detectors, fire extinguishers, repairs, cable TV, internet, electricity, gas, renovations, painting and other professional services. So homeowners can expect to pay 7% more for these goods and services