Harmonized Sales Tax (HST)
The ABCs of the HST On July 1, 2010, the HST combines the 7% PST and the 5% GST into one harmonized 12% tax. The proposed HST will apply to the same goods and services as the GST, with some limited exceptions. A rule of thumb is if you now pay the 5% GST on goods and services, you will pay the 12% HST on the same goods and services. The PST will be eliminated on July 1, 2010. There will be a limited number of exemptions to the HST, including point-of-sale rebates similar to current PST exemptions. These are not paid at the time of purchase and will include basic groceries, gasoline, and children’s clothing and footwear.
Some goods and services previously exempt from the PST will be taxed under the HST as of July 1, 2010. These include home renovations, energy-efficient appliances and doors and windows, professional services, work safety equipment, home heating fuel, telephone, internet, cable, newspapers, magazines, bicycles, taxi fares and restaurant meals. Will you pay tax on more goods and services than you currently pay with the PST? Yes. The HST will apply to all goods and services currently subject to GST. Under the GST, tax is payable on more goods and services than is payable under the PST. The HST & Homebuyers New Homes:
The harmonized sales tax (HST) will combine the 7% provincial sales tax (PST) with the 5% federal GST into one 12% harmonized sales tax (HST) as of July 1, 2010. Right now, a buyer of a new home pays a 5% GST. Qualifying home buyers can apply for a rebate of 36% of the GST paid on the first $350,000 of the new home price, and a partial rebate for a new home price of $350,000 to $450,000. When the HST is in force next summer, a buyer will pay a 12% HST on a new home. A buyer of a home priced at $400,000 or less will receive a rebate of 5% to a maximum of $20,000. A buyer of a new home priced at more than $400,000 will receive flat rebate of $20,000.
This includes the 12% HST ($70,588) minus the $20,000 rebate and minus the embedded 2% PST ($11,765) that builders will be able to claim as new input tax credits, the value of which may be passed onto the buyer. Resale Homes:
Both buyers and sellers of resale homes will pay the new HST on a range of goods and services including home inspections, appraisals, surveys, landscaping, renovations and Realtor® fees. Closing Costs - The sale of a $570,000 resale home will result in increased costs of approximately $35 for the purchaser and $1,316 for the seller. In contrast, the sale of a new condominium valued at $410,000 will result in a cost decrease to the purchaser of $944 and an increase to the seller of $741.
The situation changes considerably, however, when the home price goes up to $600,000 where the GST rebate has disappeared. Under this scenario, the purchaser’s cost under the HST regime would increase by $8,617 and the seller’s costs would increase by $1,040. Effective July 1, 2010, if a home builder provides a price reduction as a result of being able to claim back the 2% embedded PST, it may be less than it currently is to purchase a new home of $400,000 and under.