New rules for how much harmonized sales tax (HST) new homes buyers must pay go into effect April 1.
But the tax bill on a home valued up to $850,000 will be the same regardless of whether it's bought under the HST regime, which ends March 31, 2013, or under the incoming provincial sales tax (PST) and goods and services tax (GST) if the home is the buyer's primary residence.
Homebuyers, however, will continue to pay more tax on homes priced above the $850,000 threshold under the HST than under the PST/GST regime because the 7% provincial portion of the HST will apply to each dollar of the home price above the $850,000 threshold.
Buyers of new homes valued at more than $450,000 are ineligible for rebates on the 5% federal part of the HST or on the future 5% GST.
As long as the home is intended to be a buyer's primary residence, he or she will be eligible for a rebate on the 7% provincial portion of the HST.
That rebate reduces the tax on the provincial portion of the HST to 2%.
Therefore on homes priced up to $850,000, the HST is equivalent to 7% (a 5% federal and a 2% provincial portion).
Every dollar that a buyer spends above the $850,000 threshold will be taxed at 12% HST because while the federal portion would stay at 5%, the provincial component, no longer eligible for the rebate, would rise to 7%.
There'll be no PST on new homes.
However, they'll be no cheaper following the transition to the PST/GST because homebuilders will have to pay the full 7% PST on building materials. They don't pay that under the HST.
Construction companies don't pay 7% PST on labour costs.
So when the PST that developers pay is divided into the cost of the home, the result tends to be about 2%.
That embedded tax is then paid by consumers when they buy the home. •
Comparisons are for purchases of new homes that are a person's primary residence
Home built after July 1, 2010, and sold between April 1, 2012, and March 31, 2013
$850,000 home
$74,500 total tax
HST: $59,500
Federal portion of HST: $42,500
Provincial portion of HST: $17,000
Property transfer tax: $15,000
$1.7 million home
$193,500 total tax
HST: $161,500
Federal portion of HST: $85,000
Provincial portion of HST: $76,500
Property transfer tax: $32,000
Home built before April 1, 2013, and sold after April 1, 2013
$850,000 home
$74,500 total tax
Total GST/PST: $59,500
Federal GST: $42,500
Provincial PST: $17,000
Property transfer tax: $15,000
$1.7 million home
$151,000 total tax
Total GST/PST: $119,000
Federal GST: $85,000
Provincial PST: $34,000
Property transfer tax: $32,000
Home built and sold after April 1, 2013
$850,000 home
$74,500 total tax
Total GST and embedded PST: $59,500
Federal GST: $42,500*
Property transfer tax: $15,000
*Provincial PST: $0 (Homebuilders pay 7% on building materials, so the home will have an embedded tax of about $17,000)
$1.7 million home
$151,000 total tax
Total GST and embedded PST: $119,000
Federal GST: $85,000**
Property transfer tax: $32,000
**Provincial PST: $0 (Homebuilders pay 7% on building materials, so the home will have an embedded tax of about $34,000)
