Blog by Corina Marin

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PST will make the purchase of pricier homes cheaper

The provincial government officially eliminates the harmonized sales tax and reinstitutes a provincial sales tax (PST) as of April 1.

Homebuilders are hammering away at this message in an attempt to eliminate confusion among consumers, who wrongly believe that they will save tax if they wait to buy a new home.

"Builders are frustrated with the confusion in the public," said Bob De Wit, who is CEO of the Greater Vancouver Home Builders' Association. "It's a complicated issue."

Cost savings on the purchases of new homes after the PST was re-instated April 1 will be limited to those priced above $850,000, said Mackay LLP director of income and commodity taxation Tom Baybutt. New homes were taxed the equivalent of 7% – not the full 12% HST – on the first $850,000. Every dollar above that threshold was taxed at 12%.

Starting April 1, buyers of new homes pay the 5% goods and services tax (GST) and a 2% transitional tax on the cost of their home regardless of how expensive it is. But the transitional tax kicks in only if the home's construction is at least 10% complete. Builders of those homes are then reimbursed for the 7% PST that they will have to spend on the building materials that go into the homes.

Pre-sales and other homes that are at least 90% built after April 1 will not be subject to the transitional tax, and builders will not be eligible to apply for rebates on the 7% PST that they spend on building materials for those homes. (See link for downloadable PDF infographic.)

The 2% transitional tax will be phased out on March 31, 2015.

Baybutt pointed out that, after April 1, real estate commissions, which were subject to 12% HST, will be subject only to 5% GST.

The tax on legal fees, however, will not drop after April 1 because they are subject to the new PST. Condominium fees, such as move-in fees, are not taxable under either the HST or the future GST-PST system.