New Rules for Condo Sales in Ontario

July 9, 2009

TORONTO — Transitional rules pertaining to new home transactions that straddle the HST effective date of July 1, 2010, have been laid out. Sales of new condominiums will be subject to the HST where both ownership and possession of the home are transferred after June 2010. Sales of newly constructed or substantially renovated homes under existing written agreements of purchase and sale entered into on or before June 18, 2009, would be grandfathered, such that these sales would not be subject to the provincial portion of the HST even if both ownership and possession of the homes are transferred after June 2010. Vendors would generally be able to recover the provincial portion of the HST payable on most purchases through input tax credits, similar to the regime under the federal GST. Where the transaction falls under the grandfathered provisions, a transitional tax adjustment would be payable — to account for tax that would have otherwise been embedded in the cost of the new home under the current provincial Retail Sales Tax regime. Vendors and purchasers of grandfathered agreements should be aware that substantial changes to the agreement are liable to get it reclassified as a new agreement, which in turn would void its claim for grandfathering. If the agreement of purchase and sale for a new condominium is entered into after June 18, 2009 and before July 1, 2010, the vendor is required to disclose in the agreement whether the provincial portion of the HST applies to the sale and, if so, whether it is included in the stated price. Failure to disclose this information in writing would result in the price being deemed to include the HST cost, meaning the vendor would have to absorb the provincial share of the HST.