Harmonized Sales Tax: Information on the Transitional Tax Adjustment for Builders of Housing in Ontario and British Columbia
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Harmonized Sales Tax: Information on the Transitional Tax Adjustment for Builders of Housing in Ontario and British Columbia
GST/HST Info Sheet GI-095
March 2013
Note: This version replaces the one dated July 2010.
This info sheet explains how the transitional tax adjustment applies to builders who sell "grandparented housing" in Ontario or British Columbia (B.C.).
For information on the transitional tax adjustment in respect of grandparented housing in Prince Edward Island, refer to GST/HST Info Sheet GI-150, Harmonized Sales Tax: Information on the Transitional Tax Adjustment for Builders of Housing in Prince Edward Island.
For information on the B.C. transition tax, refer to GST/HST Info Sheet GI-156, Elimination of the Harmonized Sales Tax in British Columbia: British Columbia Transition Tax on New Housing.
This info sheet reflects tax changes set out in the Regulations Amending Various GST/HST Regulations, No. 3 (the Regulations) published in the Canada Gazette on October 10, 2012. These changes affect certain aspects of the transitional tax adjustment in respect of housing in B.C.
Under these changes, the transitional tax adjustment applies in respect of the sale of grandparented housing in B.C. only where the tax is considered to have been collected by the builder before April 1, 2013. See the section "Transitional tax adjustment – Overview" for information on when the transitional tax adjustment is considered to have been collected by the builder.
Definitions for GST purposes, e.g., builder, residential complex, residential unit, residential condominium unit, and substantial renovation, generally apply under the HST, as do the CRA's current policies on the application of the GST to housing. GuideRC4052, GST/HST Information for the Home Construction Industry, and GST/HST Info Sheet GI-005, Sale of a Residence by a Builder Who is an Individual, discuss many of these important terms.
Refer to GST/HST Info Sheet GI-083, Harmonized Sales Tax – Information for Builders of New Housing in Ontario, or GST/HST Info Sheet GI-084, Harmonized Sales Tax – Information for Builders of New Housing in British Columbia, for a detailed explanation of "grandparented housing".
Grandparented sales of housing
When newly constructed or substantially renovated grandparented housing is sold in Ontario or B.C., the builder is not required to collect the provincial part of the HST on the sale of the housing even though both ownership and possession are transferred to the purchaser after June 2010. Only the GST at the rate of 5% applies to the sale.
However, the builder may be considered to have collected an amount referred to as the transitional tax adjustment and if so, is required to include that amount in its net tax calculation.
Transitional tax adjustment – Overview
Since the provincial part of the HST does not apply to the sale of grandparented housing, the transitional tax adjustment is intended to approximate the amount of the former retail sales tax in Ontario (RST) or the former provincial sales tax in B.C. (PST) that the builder would otherwise have paid on construction materials after June 2010 and that is embedded in the sale price of the housing.
This transitional tax adjustment is considered to be collected by the builder (even though not actually collected from anyone), and must be included in the builder's net tax calculation for the reporting period which includes the day that is:
- in the case of a detached house, semi-detached house, rowhouse unit or residential condominium unit, the earlier of the day ownership or possession of the housing is transferred to the purchaser under the written agreement of purchase and sale for the housing; or
- in the case of a condominium complex, the earlier of the day ownership of the complex is transferred to the purchaser and the day that is sixty days after the day the complex is registered as a condominium.
Under the Regulations, the transitional tax adjustment in respect of housing in B.C. is considered to be collected only if the day determined above is before April 1, 2013.
A builder who is a GST/HST registrant that is required to account for the transitional tax adjustment in its net tax calculation has to file its GST/HST return using GST/HST NETFILE. Refer to GST/HST Info Sheet GI-099, Builders and Electronic Filing Requirements, for information on the electronic filing requirements.
The transitional tax adjustment is considered to be collected by the builder and is not payable by the purchaser. It represents the amount of PST or RST that the builder would have been required to pay on construction costs incurred after June 2010 and that is embedded in the sale price of the housing.
The transitional tax adjustment does not apply to sales of traditional apartment buildings, duplexes, mobile homes or floating homes, as these do not qualify as grandparented housing.
Transitional tax adjustment – Single-unit housing
For grandparented sales of newly constructed or substantially renovated single-unit housing, the builder is considered to have collected the transitional tax adjustment if the construction or substantial renovation of the housing is less than 90% complete as of July 1, 2010.
For grandparenting purposes, "single-unit" housing means a detached house, semi-detached house, or a rowhouse unit, that is not a condominium. This type of housing may include an accessory suite, but does not include a residential condominium unit, duplex, mobile home, floating home or owner-built home.
The transitional tax adjustment for single-unit housing is based on the total consideration payable (which excludes the GST payable and any new housing rebates) and the degree of completion of the construction or substantial renovation of the housing as of July 1, 2010. However, where the consideration is less than what the fair market value of the housing would have been on the day the builder and purchaser entered into the written agreement of purchase and sale, had the housing been substantially complete on that date, the consideration for purposes of calculating the transitional tax adjustment is instead equal to that fair market value.
In recognition of the RST or PST that has already been paid by the builder on construction costs incurred before July 2010, the amount of the transitional tax adjustment in respect of single-unit housing decreases as the degree of completion increases:
| Degree of completion as of July 1, 2010 | Transitional tax adjustment rate as a % of consideration |
|---|---|
| < 10% | 2.0% |
| ≥ 10% and < 25% | 1.5% |
| ≥ 25% and < 50% | 1.0% |
| ≥ 50% and < 75% | 0.5% |
| ≥ 75% and < 90% | 0.2% |
| ≥ 90% | 0% |
The method used to determine the degree of completion must be fair and reasonable. For information on determining the degree of completion, refer to GST/HST Info Sheet GI-105, How to Determine the Percentage of Completion for Purposes of the Provincial Transitional New Housing Rebates and the Transitional Tax Adjustment in British Columbia and Ontario.
Example 1
You are the builder of a semi-detached house in Ontario. On December 15, 2009, you enter into a written agreement of purchase and sale for the house, which you finish constructing in October 2010. Possession and ownership are transferred to the purchaser on October 31, 2010.
As the written agreement of purchase and sale is entered into after June 18, 2009, the sale of the house is not grandparented. Since both possession and ownership transfer under the agreement after June 2010, the sale of the house is subject to the HST and the transitional tax adjustment does not apply.
Example 2
You are a GST/HST registrant builder of a newly constructed detached house the sale of which is grandparented. The sale price (excluding GST and any new housing rebates) is $450,000, which is not less than the fair market value of what the substantially completed house would have been on the day you and the purchaser enter into the written agreement of purchase and sale. The construction of the house is 85% complete as of July 1, 2010.
The transitional tax adjustment is equal to 0.2% of the total consideration payable for the house. You must include the transitional tax adjustment of $900 ($450,000 × 0.2%) in your net tax calculation for the reporting period that includes the date you give ownership or possession (whichever is earlier) of the house to the purchaser under the written agreement of purchase and sale (if the house is situated in B.C., that date must be before April 1, 2013 in order for the transitional tax adjustment to apply). As a registrant, you are required to file your return for this reporting period using GST/HST NETFILE.
Refer to the Appendix for a summary chart on the application of the transitional tax adjustment to newly constructed or substantially renovated housing.
Transitional tax adjustment – residential condominium units and condominium complexes
As a general rule, the transitional tax adjustment applies to all grandparented sales of newly constructed or substantially renovated residential condominium units or condominium complexes.
The transitional tax adjustment is equal to 2% of the total consideration payable for the sale of the condominium unit or complex, as applicable, regardless of the degree of completion of such housing as of July 1, 2010. However, where the consideration is less than what the fair market value of the unit (or complex) would have been on the day the parties enter into the written agreement of purchase and sale for the unit (or complex), had the unit (or complex) been substantially complete on that date, the consideration for purposes of calculating the transitional tax adjustment is instead equal to that fair market value.
Example 3
You are a GST/HST registrant that is the builder of a newly constructed 80-unit residential condominium complex in Ontario. On June 1, 2009, you enter into a written agreement of purchase and sale for one of the condo units in the complex. Construction of the condominium complex is completed in October 2010, and the purchaser takes possession of the unit on November 1, 2010, as set out in the agreement, and ownership shortly thereafter.
As this is a newly constructed grandparented condo unit, you are required to collect GST at the rate of 5% on the sale. The transitional tax adjustment is an amount that you are considered to have collected. The transitional rules do not provide that the individual has to pay this amount (either to you or to the CRA). You must include the transitional tax adjustment in your net tax calculation for the reporting period in which ownership or possession (whichever is earlier) of the condo unit is transferred to the purchaser under the agreement of purchase and sale, i.e., the reporting period that includes November 1, 2010. As a registrant, you are required to file this return using GST/HST NETFILE.
Example 4
You are a GST/HST registrant that is the builder of a newly constructed 150-unit residential condominium complex in Ontario. Sales of 100 condo units are grandparented. The total sale price (excluding GST and any new housing rebates) for each of the grandparented condo units is $500,000, an amount that is not less than the unit's fair market value on the day you and your purchasers enter into the written agreement of purchase and sale, had construction of the unit been substantially complete on that date. Construction of the condominium complex is 60% complete as of July 1, 2010.
The purchasers of the grandparented condo units are only be liable to pay the GST at 5%. The transitional tax adjustment that you need to include in your net tax calculation is equal to 2% of the total sale price for each of the 100 grandparented condo units, i.e., $10,000 for each unit ($500,000 × 2%). The fact that the construction of the condo complex is 60% complete as of July 1, 2010 does not affect this calculation. You must include the transitional tax adjustment for a particular condo unit in your net tax calculation for the reporting period in which ownership or possession (whichever is earlier) of the particular condo unit is transferred to the purchaser under the written agreement of purchase and sale for the condo unit. As a registrant, you are required to file your return for this reporting period using GST/HST NETFILE.
Example 5
You are a GST/HST registrant who builds a residential condominium complex on land that you own in B.C. On May 28, 2008, before beginning construction, you enter into a written agreement of purchase and sale for the complex with another person who intends to either sell or rent the units in the complex. Under the agreement, possession and ownership of the condominium complex transfer to the purchaser on March 15, 2013, which is prior to the complex being registered as a condominium. The total sale price of the complex (excluding GST) is $30 million. This amount is less than what the fair market value of the complex would have been on May 28, 2008, had the construction of the complex been substantially complete as of that date. That fair market value is $33 million.
In this case, the transitional tax adjustment is equal to $660,000 ($33 million × 2%) since the consideration payable on the sale of the complex is less than what the fair market value of the complex would have been on May 28, 2008, had construction of the complex been substantially complete on that date. You must include this amount in your net tax calculation for the reporting period that includes March 15, 2013 (the day ownership of the complex transfers to the purchaser since the complex is registered as a condominium on a later date). As a registrant, you are required to file your return for this reporting period using GST/HST NETFILE.
Transitional tax adjustment for condominiums and the provincial transitional new housing rebate
In the case of residential condominiums, the 2% transitional tax adjustment is in addition to the RST or PST that would have already been paid by the builder on construction costs incurred before July 2010. To reduce the tax embedded in the condominium to approximately 2%, a builder may be entitled to claim a provincial transitional new housing rebate if the construction or substantial renovation of the condominium unit or complex is at least 10% complete as of July 1, 2010. For more information on this rebate, refer to GST/HST Info Sheet GI-096, Harmonized Sales Tax: Provincial Transitional New Housing Rebates for Housing in Ontario and British Columbia.
Under the Regulations, the B.C. provincial sales tax (PST) transitional new housing rebate is available only where the transitional tax adjustment is considered to have been collected on the housing. If the transitional tax adjustment is not considered to have been collected by the builder, because the date on which it would have been considered to have been collected is on or after April 1, 2013, the B.C. PST transitional new housing rebate is not available.
This info sheet does not replace the law found in the Excise Tax Act (the Act) and its regulations. It is provided for your reference. As it may not completely address your particular operation, you may wish to refer to the Act or appropriate regulation, or contact any CRA GST/HST rulings office for additional information. A ruling should be requested for certainty in respect of any particular GST/HST matter. Pamphlet RC4405, GST/HST Rulings – Experts in GST/HST Legislation, explains how to obtain a ruling and lists the GST/HST rulings offices. If you wish to make a technical enquiry on the GST/HST by telephone, please call 1-800-959-8287.
If you are located in Quebec and wish to make a technical enquiry or request a ruling related to the GST/HST, please contact Revenu Québec at 1-800-567-4692. You may also visit the Revenu Québec Web site to obtain general information.
All technical publications related to GST/HST are available on the CRA Web site at www.cra.gc.ca/gsthsttech.
Appendix – Summary chart
Newly constructed or substantially renovated housing
| Housing Type | Is the builder required to account for the transitional tax adjustment in its net tax calculation? |
|---|---|
| Residential condominium unit | Yes, if the sale of the unit is grandparented.* Calculated as 2% of the sale price**. |
| Residential condominium complex | Yes, if the sale of the complex is grandparented.* Calculated as 2% of the sale price**. |
| Single-unit housing (detached house, semi-detached house, rowhouse unit that is not a condominium) | Yes, if the construction or substantial renovation of the single-unit housing is less than substantially completed as of July 1, 2010, and the sale of the housing is grandparented.* Based on the sale price** and the degree of completion of the housing as of July 1, 2010 (see chart on page 2). |
| Duplex | No |
| Apartment | No |
| Mobile home | No |
| Floating home | No |
* Under the Regulations, for housing in B.C. the builder is not required to account for the transitional tax adjustment if the date on which the tax would have been considered to have been collected is on or after April 1, 2013.
** "Sale price", for purposes of the transitional tax adjustment is the greater of:
- the consideration payable under the written agreement of purchase and sale and any amendments to that agreement, i.e., before the GST applies and before any new housing rebates are applied; and
- what the fair market value of the housing would have been on the day the builder and the purchaser entered into the written agreement of purchase and sale, had the housing been substantially complete on that date.
- Date modified:
- 2013-04-04