GST cut good for new homebuyers and homeowners

The tax changes outlined in the federal government's economic statement will bring significant savings to new homebuyers, but will also benefit existing homeowners. According to government calculations, the reduction in the GST rate from 7% to 5% will save a family purchasing a new $250,000 home $3,200 in GST. Half of that amount is from the reduction in the GST rate from 6% to 5%.

To keep new homebuyers from waiting until January to purchase a home and take advantage of the lower GST rate, the federal government made the reduction effective immediately, on new homes only, when it announced the tax cut at the end of October.

Buyers who purchased after May 2, 2006, but on or before October 30, 2007, will pay 6% GST, but get a 1% transitional rebate (less GST new housing rebate adjustment) as long as ownership and possession are transferred after January 1, 2008.

Homebuyers who purchased on or before the previous GST rate cut from 7% to 6% (May 2, 2006) will have to pay 7% GST, but will get a 2% transitional rebate (less GST new housing rebate adjustment) from Ottawa, again providing ownership and possession are transfered after January 1, 2008.

Existing Homeowners

New homebuyers may see the biggest savings, however, when the new 1% reduction in the GST takes effect in January 2008, it will also help existing homeowners to pay for home renovations, new appliances or furniture. The federal government claims that Canadians spend an average of $7,475 on renovations when they buy a home, and spend another $3,950 on furniture and appliances. Based on these figures, the GST cut represents $114 in savings.

The Canadian Home Builders Association offer the following guidelines for home renovations and how the GST is applied.

- Renovations done before or after January 1, 2008, but invoiced on or after that date will qualify for the 5% GST rate.

- For renovations done and invoiced January 1, 2008, but subject to a down payment before January 1, 6% GST will be collected on the down payment and 5% on the rest of the fee.

- For renovations done after January 1, 2008, but subject to a deposit paid before January 1, the 5% rate applies. A deposit is not treated as a payment for a supply of goods or services until the supplier applies it against the consideration payable for the supply.

For further information on the new GST reduction and transitional rebates, visit cra-arc.gc.ca. (Reprinted with permission from the Ottawa Real Estate Association, Realtor Edge, January 2008.)