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Ontario PST Harmonization

15/07/2009


The Provincial Component of the New Housing Rebate

On July 1, 2010, Ontario’s PST will be harmonized with the federal GST. All goods, services, intangibles and new real property supplied (or deemed to be supplied) in Ontario will be subject to the combined single rate of 13%.

Enhanced New Housing Rebate
The province proposed that newly constructed or “substantially renovated” homes (including co-operative homes, owner-built homes, mobile homes, and modular homes) that are a person’s primary residence would be eligible for a rebate for all price ranges of six per cent times the purchase price amount up to $400,000 (maximum rebate of $24,000). A purchase price in excess of $400,000 would not be eligible for any rebate. The six per cent rebate represents 75 per cent of the provincial component (eight per cent) of the single tax (13 per cent).

The new rebate on the provincial component of the tax would be administered by the Canada Revenue Agency (CRA). Similar to the current GST rebate on new housing, the purchaser can assign the rebate to the builder and receive a credit from the builder at the time of purchase.

New Rental Housing Rebate
For new rental housing, including investment properties that will be rented out, the province is proposing the same rebate of six per cent on rental units for all price ranges up to $400,000.

The rebate will apply to rental units, including: substantially renovated rental housing, co-operative rental housing, apartment buildings, additions to apartment buildings, rental mobile homes and rental modular homes for use as primary places of residence.

Transitional Rules for Residential Real Property
The transitional rules for new housing transactions straddling July 1, 2010 would be administered by the CRA.

Application of Tax for New Homes
Where builders sell newly constructed or substantially renovated homes, the sale would be subject to 13 per cent where both ownership and possession of the home is transferred after June 2010 (subject to the grandparenting rules below).

Application of Tax for New Rental Homes: Builder - Landlords
Where a “self-supply” occurs after June 2010 the self-assessment occurs at the new single rate of 13 per cent. This applies to newly constructed or substantially renovated rental homes or rental condominiums as well as for apartments (when the first unit is rented out).

Application of Tax for New Rental Homes: Purchaser - Landlords
Where ownership and possession are transferred after June 2010 for newly constructed or substantially renovated single rental homes, rental condominiums and rental apartment units, the sale is taxable at 13 per cent subject to the grandparenting rules.

Grandparenting
Sales of newly constructed or substantially renovated homes or condominiums under written agreements entered into before June 19, 2009 would be subject to five per cent (no provincial component) GST only where both ownership and possession is transferred after June 2010.

Builders would be able to recover the provincial component of the single tax paid on purchases with limited exceptions. Builders of grandparented homes would be required to pay a transitional tax adjustment. Builders would also be required to meet certain reporting and disclosure requirements for grandparented homes.

Transitional Tax Adjustment – Single Homes
For grandparented single homes or substantial renovations, a builder would be required to pay a transitional tax adjustment if the home is completed after June 2010. This adjustment would be based on the total purchase price of the home depending on the extent of the construction or substantial renovation as of July 1, 2010.

  • Where the home is less than 10 per cent complete on July 1, 2010, 100 per cent of the transitional tax adjustment of two per cent.
  • Where the home is greater than or equal to 10 per cent but less than 25 per cent complete on July 1, 2010, 75 per cent of the transitional tax adjustment of two per cent.
  • Where the home is greater than or equal to 25 per cent but less than 50 per cent complete on July 1, 2010, 50 per cent of the transitional tax adjustment of two per cent.
  • Where the home is greater than or equal to 50 per cent but less than 75 per cent complete on July 1, 2010, 25 per cent of the transitional tax adjustment of two per cent.
  • Where the home is greater than or equal to 75 per cent but less than 90 per cent complete on July 1, 2010, 10 per cent of the transitional tax adjustment of two per cent.
  • Where the home is 90 per cent or more completed on July 1, 2010, zero per cent.


Transitional Tax Adjustment – Condominiums
For sales of grandparented residential condominiums the builder would be required to pay a transitional tax adjustment and may also be eligible for an RST transitional housing rebate. The transitional tax adjustment would be based on two per cent of the total purchase price of the condominium unit or building. The transitional rebate is described in detail below.

Grandparenting for New Residential Rental Homes and Condominiums
Purchases of newly constructed single homes and condominiums (including substantial renovations of both) for residential rental would be grandparented if the agreement of purchase and sale was entered into before June 19, 2009 by the purchaser-landlord of the home or condominium.

New Construction / Substantial Renovation of New Owner Built Homes
There would be no grandparenting for newly constructed or substantially renovated owner built homes. These homes may qualify for the proposed new housing rebate or the new rental housing rebate.

RST Transitional Housing Rebate
An RST new housing rebate would be available to provide relief for the RST embedded in the price of a new home. This rebate would be available for non-grandparented single homes, condominiums and traditional apartment buildings, as well as grandparented condominiums for which the transitional tax adjustment would be payable.

Transitional Rebate – Single Homes
The rebate would be available to individuals purchasing the home or to builders who first rent the home after June 2010. This rebate would be available for homes on which the single sales tax at the higher rate applied, but not to grandparented homes. This rebate may be assigned to the builder.

Transitional Rebate – Condominiums and Apartments
For newly constructed or substantially renovated apartments or residential condominiums, the RST transitional rebate would be available to the builder instead of the purchaser. The rebate would be available where the single sales tax rate or the transitional tax adjustment would apply.

Transitional Rebate Calculation
The rebate would be a proportion of the estimated embedded RST (estimated RST content) based on the degree of completion on July 1, 2010.

The “estimated RST content” could be calculated using one of two methods:

1. “estimated RST content” at a prescribed amount per square metre of floor space in the home (floor space method) or
2. “estimated RST content” based on two per cent of the selling price of the home (selling price method).

The rebate would be based on the following percentages of completion on July 1, 2010:

  • If the home is 90 per cent or more completed on July 1, 2010, 100 per cent of the estimated RST content.
  • If the home is 75 per cent or more but less than 90 per cent completed, 90 per cent of the estimated RST content.
  • If the home is 50 per cent or more but less than 75 per cent completed, 75 per cent of the estimated RST content.
  • If the home is 25 per cent or more but less than 50 per cent completed, 50 per cent of the estimated RST content.
  • If the home is 10 per cent or more but less than 25 per cent completed, 25 per cent of the estimated RST content.
  • If the home is less than 10 per cent completed, zero per cent.


Being eligible for the RST transitional rebate would not affect the eligibility for the new housing rebate.

More information will be available in the next few months regarding the “floor space method”.

Newly constructed or substantially renovated homes, built by owners for their personal use, would not be eligible for the RST transitional housing rebate. These homes may, however, qualify for the new proposed housing or new rental housing rebates.

Transitional Rebate Timeframes
Where the floor space method is used for the rebate calculation, the applicant would be able to file a rebate anytime after June 2010.

Where the selling price method is used for the transitional rebate it could be filed no earlier than when the transitional tax adjustment or the single sales tax rate would be payable.

The application for the rebate needs to be filed before July 1, 2014.

Builder Disclosure Requirements
Where a written agreement for a newly constructed or substantially renovated home or rental home is entered into after June 18, 2009 and before July 1, 2010, the builder would be required to disclose the following in the agreement: whether the provincial portion of the single sales tax would apply to the sale and whether the price includes the applicable provincial portion, net of the new housing rebate.

If the transaction would be subject to the provincial component and the builder did not make the disclosure, the stated price in the agreement would be deemed to include the provincial component. In this case, the purchaser would not be required to pay the provincial component in addition to the selling price in the agreement.