I received so many questions concerning last week’s article on the new Harmonized Sales Tax that is coming into effect on July 1, 2010, I thought it best to review for my readers the important points in order to clarify any confusion.
• The new HST applies only to new construction or homes that are substantially renovated (the definition of substantially renovated is complicated and you should consult your lawyer if you feel this is the type of home you are purchasing). It does not apply to resale houses or condominiums.
• If you are purchasing a new home with a value less than $400,000, you should receive a rebate that will effectively mean that you are not paying any more taxes than you would have before the implementation of the HST.
• There will be HST on the ancillary services related to the real estate transaction such as real estate commission and legal services — this however is small in comparison to an eight per cent tax on a large purchase such as a $600,000 home.
• If your transaction is taking place after July 1, 2010, you cannot pre-pay for services and thereby avoid paying this tax — I have had several clients ask this.
• If you entered into your agreement of purchase and sale for your new home prior to the announcement of the new tax, you are grandparented into the tax and you will not have to pay it on closing.
• If you have any questions concerning the amount due on your purchase, you should contact your lawyer. Although I try to answer questions that are posed to me by my readers, the sheer volume and complexity of the questions that were prompted by last week’s column require individual attention, which is best addressed by your own counsel.
The HST is a further wrinkle in doing business in Ontario and can result in a large tax bill for new home purchasers if they are buying an expensive home after July 1, 2010.
– Jeffrey D. Cowan is the principal of Cowan & Taylor, Barristers & Solicitors, jeff@cowanandtaylor.com. The information contained in this article should not be relied upon as legal advice.
