British Columbia Harmonized Sales Tax. Urban Development Institute Kelowna. January 14, 2010

Transcription

1 British Columbia Harmonized Sales Tax Urban Development Institute Kelowna January 14, 2010

2 Agenda 1. Application of GST/HST and general transitional rules 2. Grandparenting 3. New BC rebates 4. Builder transitional tax adjustment 5. BC transitional new housing rebate 6. Assignment transactions/resale of grandparented units 7. Other issues 8. Examples 9. Wrap up

3 General Application of HST or GST Sales of New Homes Sales of newly constructed or substantially renovated homes subject to 12% HST where both ownership and possession transferred on or after July 1, Grandparenting provided for certain contracts signed on or before November 18, % GST continues to apply to sales newly constructed or substantially renovated homes. Requires written agreement of purchase and sale, ownership or possession is transferred before July 2010.

4 Exempt Sales of Real Property Generally, the following types of supplies real property are exempt: Sale of "used" residential property is exempt Sale of "vacant land" by an individual or a personal trust is exempt from GST Sale of farmland by an individual is exempt from GST if it is sold to a related individual who is using the property for personal use Lease / rent of residential complex (monthly rentals to individuals as a place of residence)

5 Commercial Real Property Generally, all supplies of commercial real property are GST / HST taxable 12% HST is due where both possession and ownership of commercial real property occurs on or after July 1, 2010 Usually, GST/HST registered purchasers of commercial real property self-assess GST and claim an input tax credit (ITC) on their return (Vendor does not collect GST on the sale) Leases of commercial property (including triple-net leases) are GST/HST taxable Example: A monthly commercial property lease payment for the period June 1 to June 30 th, 2010 is subject to GST. The July 1 st payment is subject to HST

6 Services For services: HST will apply to services performed on or after July 1, 2010 HST will generally not apply to the supply of a service if 90% or more of the service is performed before July 1, 2010 HST will apply to payments that are due or paid without having become due between May 1 June 30 th for services rendered on or after July 1, 2010 (prepayments) REALTOR commissions payable for services rendered June 30 th or earlier 5% GST collectible REALTOR commissions payable for services rendered on or after July 1, % HST collectible

7 Leases & Licenses HST will generally apply to lease intervals or payment periods on or after July 1, GST and PST will apply if the lease period begins before July 1, 2010 and ends before July 31, 2010 Example: A car lease payment is for the lease period June 15 th to July 14 th, GST and PST apply to the lease payment. The July 15 th lease payment is subject to HST. The HST will be claimable as an ITC, to the extent the vehicle is being used in commercial activities.

8 Timing of Consideration / Application of Tax Application of HST - general rules GST HST Real Property Sales Ownership or possession transfer before July 1, 2010 Yes Ownership and possession transfer after June 30, 2010 Yes Real Property Leases Lease interval ending before July 31, 2010 Yes Lease interval ending after July 30, 2010 Yes Grace Period - Lease intervals before July 1, 2010, paid or payable before November 1, 2010 (eg: in arrears) Yes

9 Grandparenting

10 Transitional Rules Grandparenting Generally applies to sales of newly constructed or substantially renovated single-unit homes to individuals and sales of residential condominiums to all persons including individuals. Written agreement of purchase and sale entered into on or before November 18, Ownership and possession transferred under the agreement on or after July 1, Sales/purchases subject to 5% GST but not 7% provincial component of HST.

11 Transitional Rules Grandparenting Grandparented homes not eligible for BC new housing rebate or new rental housing rebate because 7% BC component not paid by purchaser Grandparenting does not apply to traditional apartment buildings, duplexes, mobile homes, floating homes and homes built by owners for their personal use where construction straddles July 1, Builders May be eligible to claim an ITC for the 7% provincial component of HST paid on materials purchases post-june 30, Required to meet certain reporting and disclosure requirements for grandparented homes.

12 New BC Rebates

13 New BC Housing Rebates Introduction Sales of new homes in BC are not subject to PST but building materials used include 7% PST estimated to be 2% of the selling price of a new home. Basically, 5% of the selling price up to a maximum of $525,000, or $26,250 Legislation intends that purchasers of new residential housing will pay no more tax, on average, than under the current PST system. No phase out of this rebate and homes priced above $525,000 would qualify for the maximum rebate amount of $26,250

14 New BC Housing Rebates General The new housing rebates would be subject to the same eligibility conditions as new housing rebates under the GST: Newly constructed and substantially renovated residential housing. Used as a primary place of residence by an individual or qualifying relation of the individual. New housing rebates administered by CRA. Individuals can file a rebate application directly with the CRA. Builder has option of paying or crediting the rebate to the purchaser at the time of purchase.

15 New BC Housing Rebates Qualifying Housing Purchase of new houses together with land. Purchase of new houses together with leased land. Purchase of new mobile homes and floating homes. Houses acquired through the purchase of qualifying shares in a housing co-op. Houses constructed or substantially renovated by the owner who is an individual (i.e., owner-built homes).

16 New BC Housing Rebates Qualifying Housing contd. Owner Built Homes Individual constructs or substantially renovates his or her primary place of residence. Where provincial component of HST paid on the land: Individual entitled to rebate of 71.43% of provincial component of HST paid on qualifying construction expenses (including land) Maximum rebate of $26,250 with no phase out for qualifying construction expenses over $525,000. Where provincial component of HST not paid on the land: Individual entitled to rebate of 71.43% of provincial component of HST paid on qualifying construction expenses (not including land) Maximum rebate amount of $17,588 (~ 67% of $26,250).

17 New BC Housing Rebates New Rental Housing Includes the following types of rental housing : single-unit housing, residential condominium units and duplexes; mobile homes and floating homes; units in multiple unit housing (e.g., residential units in apartment buildings or long-term care facilities); land component of single-unit or multiple unit housing where land is leased together with the sale of the building; and single-unit housing or units in multiple unit housing in a housing coop.

18 New BC Housing Rebates New Rental Housing contd. Similar to the new housing rebate - subject to the same eligibility criteria. Provided to landlords who self-assess or pay HST on or for newly constructed or substantially renovated rental housing in BC. First use of housing must be for occupancy or use by an individual under a rental arrangement for a period of at least one year. For multiple unit rental housing maximum rebate amount of $26,250 applies for each eligible residential unit.

19 New BC Housing Rebates New Rental Housing Leased Land Rebate for an exempt rental of land for residential use (i.e., rent out a residential lot, a site in a residential trailer park or a site in an addition to a residential trailer park) where HST self-assessed on the land. Rebate of 71.43% of provincial component of HST paid, up to a maximum of $8,663 (~ 33% of $26,250). For multiple residential lots or sites in a residential trailer park or addition, the maximum rebate amount of $8,663 will apply to each lot or site.

20 New BC Housing Rebates Residential Real Property Jurisdiction Rate Maximum GST New Housing Rebate BC New Housing Rebate 36% of GST for housing up to $350,000 phased out at $450, % of BC HST component for housing up to $525,000 $6,300 $26,250 New Rental Housing Rebate (BC and Federal) Same as above Same as above

21 BC Transitional Tax Adjustment (Builder Tax)

22 Transitional Rules Transitional Tax Adjustment (Builder Tax) Builders of grandparented homes generally required to pay a transitional tax adjustment. Intended to approximate amount of PST (~ 2%) which would have been embedded in the price of the home. Based on the extent of the home construction or substantial renovation completed as of July 1, For single-unit homes, calculated on the total consideration for GST purposes, based on the degree of completion as of July 1, For condominiums, calculated at 2% of the value of consideration for GST purposes.

23 Transitional Rules Transitional Tax Adjustment Single-Unit Homes Degree of Completion on July 1, 2010 Transitional Tax Adjustment Payable Less than 10% 2.0% 10% or more but less than 25% 1.5% 25% or more but less than 50% 1.0% 50% or more but less than 75% 0.5% 75% or more but less than 90% 0.2% 90% or more 0%

24 BC Transitional New Housing Rebate

25 Transitional Rules PST Transitional New Housing Rebate Relief for PST embedded in the price of new homes completed in full or in part prior to July 2010 where HST applies on or after July 1, Individuals purchasing new homes may: Obtain the PST transitional rebate through the builder or By filing an application directly with the CRA. Individuals filing their own rebate will have to obtain a percentage of completion certificate from the builder. For residential condominiums or traditional apartment buildings, the transitional rebate will be available only to the builder.

26 Transitional Rules PST Transitional New Housing Rebate contd. Does not: Affect purchaser s or builder s ability to claim the new housing rebate or new rental housing rebate. Apply to owner-built homes, mobile homes and floating homes. Builder required to obtain a clearance certificate from the province and attach it to first rebate application submitted to CRA. Clearance certificate provided where builder has no outstanding provincial tax debts. Clearance certificate valid for one year.

27 Transitional Rules PST Transitional New Housing Rebate - Calculation Rebate calculated as a proportion of the estimated embedded PST based on the degree of completion of the home as of July 1, Estimated embedded PST to be computed using one of the two following methods: Floor Space Method: Calculated at a prescribed amount of $60.00 per square metre of floor space; or Selling Price Method: Calculated at 2% of the total selling price of the home established for GST purposes.

28 Transitional Rules PST Transitional New Housing Rebate - Calculation Degree of Completion on July 1, 2010 Transitional Rebate Percentage Less than 10% 0% 10% or more but less than 25% 25% 25% or more but less than 50% 50% 50% or more but less than 75% 75% 75% or more but less than 90% 90% 90% or more 100%

29 Transitional Rules PST Transitional New Housing Rebate - Timeframe Floor Space Method: Applicant eligible to file a refund claim on or after July 1, Selling Price Method: Claim can be made no earlier than the day that HST or the transitional tax adjustment would be payable. In all cases, the rebate will generally need to be filed before July 1, Under extenuating circumstances, a builder can request in writing for an extension of the timeframe to file the rebate, provided the request is received by the CRA before July 1, 2014.

30 Assignment Transactions Resale of Grandparented Units

31 Transitional Rules Assignment of Grandparented Agreements Sale of the home from the original builder to that assignee purchaser will be grandparented if: assignee purchaser receives ownership and possession of the home under the agreement from the original builder after June 2010; there is no novation of the agreement; the purchaser and the original builder are dealing at arm s length and are not associated persons ; and the original builder or any specified related party does not acquire or reacquire the property.

32 Transitional Rules Resale of Grandparented Home by First Reseller Generally, provincial component of HST will not apply to a taxable resale of a grandparented home made by the first reseller where: the first reseller obtained possession of the grandparented home after substantial completion; the grandparented sales agreement is between persons who are dealing at arm s length and are not associated persons ; the first reseller is a "builder" of the home only because of certain provisions; and the original builder or a specified related party does not acquire or reacquire by way of sale any legal or beneficial interest in the home.

33 Transitional Rules - Resale of Grandparented Home by Subsequent Reseller Generally, the 7% BC component of HST will not apply to a taxable resale of a grandparented home made by a subsequent reseller, who acquired the home for the primary purpose of reselling the home from the first reseller, where: the purchase of the home by the subsequent reseller was not subject to the provincial component of the HST; the subsequent reseller is a "builder" of the home only because of certain provisions; and the original builder or a specified related party does not acquire or reacquire by way of sale any legal or beneficial interest in the home.

34 Transitional Rules - Original Builder s Duty to Self- Assess on Acquiring Subsequent Interest Example: Original builder acquires ownership of a previously grandparented home, of the original builder, by way of a GST taxable sale. Result: Original builder would be required to self assess and pay the 7% BC component of the HST that applies to the sale of that interest. Should be able to claim an ITC (if for resale) or rebate (if for rental) for 2% of the selling price (estimated embedded PST)

35 Transitional Rules Reseller s Disclosure Requirements So as not to collect 7% BC component, reseller must document: written agreement of purchase and sale: the name of the original builder who constructed the home; whether the home was purchased on a grandparented basis or was relieved from the provincial component of the HST under the resellers rule; and whether the 7% BC component of the HST would apply to the sale and, if so, whether the price is tax inclusive (net of any applicable rebates.) If not, the stated price in the written agreement will be deemed to include the 7% BC component of the HST.

36 Transitional Rules Other Situations Special rules for Long term care facilities, such as nursing homes Public service bodies Charities, NPOs and other public service bodies Build/purchase new residential construction May be entitled to public service body rebate or the BC new residential rental rebate.

37 Other Issues

38 Progress Payments & Holdbacks Assume 3 contract payments of $500,000, with 10% holdback released on September 15, 2010 March 15, 2010 May 15, 2010 August 15, 2010 Sept. 15, 2010 Payment #1 Payment #2 Payment #3 Payment #4 Holdback Progress payment $ 500,000 $ 500,000 $ 500,000 $ 150,000 10% Holdback $ (50,000) $ (50,000) $ (50,000) Net payment $ 450,000 $ 450,000 $ 450,000 $ 150,000 Contractor bills GST 22,500 22,500 11,250 (a) 6,250 Contractor bills HST Nil Nil 27,000 (b) 3,000 (Monthly filer) Remittance Date Mar.31, 2010 May.31,2010 Aug.31, 2010 Sept.30, 2010 (a) 50% x $450,000 x 5% = $11,250 (c) [(2x$50,000) + 50% x $50,000] x 5% = $6,250 (b) 50% x $450,000 x 12% = $27,000 (d) 50% x $50,000 x 12% = $3,000 Assume unit is 50% complete as at June 30, Therefore, 50% of August progress payment relates to goods/services delivered before June 30 th and 50% of goods/services delivered after June 30 th. Application of GST or HST will generally follow the treatment of the progress payment to which the holdback relates Does not apply to sales of newly constructed or substantially renovated homes (other transitional rules apply) Special rules for property substantially complete before June 2010

39 BC Builder Transitional Period Disclosure Requirements Written agreement entered into after November 18, 2009 and before July 1, 2010 for the purchase and sale of a new home. Builder required to disclose in the agreement: whether the provincial component of the HST will apply to the sale, and whether the stated price in the agreement includes the applicable provincial component of the HST, net of any applicable rebates. Where HST applies to the transaction but the builder did not make the necessary disclosure, the stated price in the written agreement will be deemed to include the provincial component of the HST.

40 Restricted 7% provincial component ITCs General Input Tax Credit (ITC) Rules Commercial business are entitled to claim a full ITC for GST/HST paid in the course of making GST/HST taxable supplies With HST, 7% BC provincial component of the HST becomes refundable as an ITC (whereas PST previously was not) BC and ON introduction ITC restrictions on large businesses limits by 7% the full ITC that should have been available, as per usual expenditures. Whereas certain expenditures should have become 7% cheaper, they will remain the same cost to large businesses until restriction phased out. 40

41 Implementation issues Other compliance matters Businesses will have to update their procedures on: Returns of goods Tax/price adjustments and credit notes Volume rebates and coupons Deposits and partial payments Bad debt adjustments Employee reimbursements and allowances Taxable benefits Mid- large businesses will need more sophisticated implementation plans General ledger accounts Changes implemented for July 1, 2010 Cut off issues for non-june 30 th year ends, non-monthly filers 41

42 Restricted 7% provincial component ITCs Restricted ITCs Proposed 5 year restriction (followed by 3 year phase in) Businesses with associated group revenues > $10million 7% BC component of HST not claimable as an ITC in relation to: Food, beverages and entertainment, club dues, memberships Energy excluding Energy used by farmers Energy used to produces goods for sale (manufacturers) Telecommunications (other than internet access & toll free numbers) Road vehicles (less than 3,000kg), parts and most services for them Watch for employer provided vehicles (leased or owned) 42

43 Mandatory electronic GST/HST return filing CRA just announced mandatory e-filing of GST/HST returns where: $1.5million of taxable supplies made in Canada; Subject to restricted ITC rules and have recaptured BC ITCs; or, Builders who report: Grandparented transactions Transitional tax adjustments Transitional housing rebates Reporting periods commencing July 1, 2010 Penalties proposed for not complying

44 Examples

45 Example 1 GST-taxable sale of residential unit on or before Jun (Ignore property transfer tax, fees, etc.) Selling Net Cost to price 5% GST GST Rebate Purchaser 350,000 17,500 ( 6,300) 361, ,000 20,000 ( 3,150) 416, ,000 22, , ,000 26, , ,000 37, ,500 1,000,000 50,000-1,050,000

46 Example 2 12% HST-taxable sale of residential unit on or after July 1, 2010 (Unit completed and available for sale before June 30, 2010) (Ignore property transfer tax and fees) 5% BC GST New New 2% BC Selling price 12% HST Housing Rebate Housing Rebate Trans. Rebate Net Cost to Purchaser $- Increase % 350,000 42,000 (6,300) (17,500) (7,000) 361, % 400,000 48,000 (3,150) (20,000) (8,000) 416, % 450,000 54,000 - (22,500) (9,000) 472, % 525,000 63,000 - (26,250) (10,500) 551, % 750,000 90,000 - (26,250) (15,000) 798,750 11, % 1,000, ,000 - (26,250) (20,000) 1,073,750 23, %

47 Example 3 Comparison of non-grandparented new residential property GST-taxable vs. HST-taxable sale June 15, 2010 July 15, 2010 Selling price 525, ,000 5% GST 26,250-12% HST - 63,000 Subtotal 551, ,000 GST new housing rebate - - BC new housing rebate - (26,250) (max) BC transitional rebate - (10,500) * Net cost to purchaser 551, ,250 * based on 2% of selling price

48 Example 4 Grandparented sale of residential unit sold July 31, 2010 Various degrees of com pletion as at June 30, 2010 %-Complete 100% 50% 0% Selling price 525, , ,000 5% GST 26,250 26,250 26,250 12% HST Subtotal 551, , ,250 GST new housing rebate BC new housing rebate BC transitional rebate Net cost to purchaser 551, , ,250 Builder transitional tax - 2,625 10,500 Builder transitional tax based on selling price adjustment No GST rebate, because $nil as at $450,000 No BC new housing rebate, because no BC component HST paid (grandparented) No BC transitional rebate (grandparented)

49 Example 5 Grandparented Yes Yes Yes No No No % Complete Jun 30, % 50% 0% 100% 50% 0% Sold Aug.31, 2010 Aug.31, 2010 Aug.31, 2010 Aug.31, 2010 Aug.31, 2010 Aug.31, 2010 Selling price 350, , , , , ,000 5% GST 17,500 17,500 17, % HST ,000 42,000 42,000 Subtotal 367, , , , , ,000 GST new housing rebate (6,300) (6,300) (6,300) (6,300) (6,300) (6,300) BC new housing rebate (17,500) (17,500) (17,500) BC transitional rebate (7,000) (5,250) - Net cost to purchaser 361, , , , , ,200 Builder transitional tax - 1,750 7, Est. ITCs claimed by Builder - (1,750) (7,000) - (1,750) (7,000) Net tax collected by gov't 11,200 11,200 11,200 11,200 11,200 11,200 Not shown: assumption that ITCs claimed by builder will be reflected in reduced selling prices of units built out after July 1, 2010 (last column)

50 Example 6 Commercial real property example Contract negotiated assuming PST would be embedded in materials costs, but sourced when ITC on materials claimed Situation A Situation B Before After Revised HST HST Selling Price Land $ 5,000,000 $ 5,000,000 $ 5,000,000 Materials 5,350,000 5,000,000 5,000,000 Labour 5,000,000 5,000,000 5,000,000 Profit 1,650,000 2,000,000 1,650,000 Selling price $ 17,000,000 $ 17,000,000 $ 16,650,000 Situation A: Assumes building constructed/sold before July 1, % PST cost included in cost of materials No GST shown (claimed as ITC) Situation B: Assumes building constructed/sold entirely after July 1, % provincial component of HST claimed as ITC Post-HST: Sell price dropped to $1,650,000 and realize same margin 50

51 Significant complexity and compliance issues surrounding the new rules Opportunity for significant $ of errors increased Essential to Review contracts / ensure contract documentation correct Get prepared to provide estimates/certificates of completion as at June 30, 2010 Update accounting / billing / invoicing systems Going forward, refundable BC component of the HST will impact pricing decisions (reduced input costs) Businesses may face pricing scrutiny by customers and/or attempts to renegotiate contracts Marketing / sales initiatives

52 Wrap-up

53 Game Plan Next steps can we help? GST/HST Questions? Get advice to solve your specific GST/HST related questions GST/HST risk management review Complete review of Tax status of supplies / tax collection & remittance procedures ITC/rebate claiming procedures Input tax credit methodologies HST impact assessment Implementation planning and systems change management

54 Fin People you should get to know: Grant Thornton LLP - Kelowna Office Jim Grant, CA Office Managing Partner Martin Rutherford, CA Audit/Assurance Partner Rob Collins, CA Senior Manager Kevin Santos Senior Manager Darren Taylor, CA Senior Manager, Sales Tax (Vancouver)