Question: What effect will the HST have on construction of a new home to live in, and not sell? Will the HST cause the cost of construction of that new home to be more compared to building it before the HST comes into effect? Also, how will contractors handle the changeover if the build takes place before and after the HST comes?
Ron Osborne answers: Under HST, the contractor and sub-contractors will no longer pay PST; the new 12-per-cent HST will be recovered by way of input tax credits thereby reducing the cost to the contractor and, hopefully, the amount the contractor charges. However, the homeowner will be paying 12 per cent tax on the amount charged by the contractor resulting in a net increase in cost to the homeowner.
This increased cost may be reduced by the new Provincial New Housing Rebate. The rebate is equal to 5% to a maximum of $26,250 if HST is paid on the purchase of land, or $17,588 if no tax was paid on the purchase of the land. For example, if the land was purchased exempt for $200,000 and construction costs were $300,000, the HST paid would be $21,000. The provincial New Housing Rebate would be $15,000 (5% x $300,000). In most cases where no tax is paid on the land, the net cost should be close to, or maybe even slightly less than, the net cost under the existing PST system.
Builders of homes under construction at June 30 will be able to apply for a transitional PST rebate to avoid the double taxation, which would occur otherwise. Details of the transitional rules and rebates may be found on the CRA or Consumer Taxation websites.