Canada

Grandparented housing sales see simplified reporting requirements

TAX ALERT  | 

The Department of Finance (Finance) announced changes beneficial to home builders who have ‘grandparented’ new or substantially renovated housing under the transitional Harmonized Sales Tax (HST) rules. The reporting requirements for these types of housing will now be simplified.

Certain taxable housing sales were grandparented as a transitional action to prevent the provincial component of the HST or the HST rate increase to affect these sales.

Reporting changes to the Electronic Filing and Provision of Information (GST/HST) Regulations took effect on June 3, 2016. Under these new rules, builders with grandparented housing sales must report only those transactions that qualify under the new definition of ‘specified housing supply’ ($450,000 or more), for reporting periods after March 22, 2016. In each period where the GST is triggered, builders need to report the number of units corresponding to the definition of specified housing supplies as well as the total amount for the specified housing supplies.

Before these new rules were implemented, when the HST took effect, builders who made grandparented housing sales became subject to specialized reporting requirements and the purchaser did not qualify for a GST New Housing Rebate or New Residential Rental Property Rebate.

Previously, builders may not have been privy to information regarding the purchaser’s entitlement to one of these rebates. Since builders typically credit the rebate to the buyers at the sale closing, they would know that a buyer could claim the GST New Housing Rebate. But the same builder would not necessarily have access to the rental agreement, thus he or she might not know that the buyer could claim the GST Residential Rental Property Rebate.

An opportunity to correct past reports

Under the new simplified rules, builders can now elect to report all specified housing supplies in British Columbia, Nova Scotia, Ontario or Prince Edward Island, where the GST or the federal HST came into effect, after June 2010 and before May 2016. Builders must use Form RC4617 and report on a calendar-year basis.

Minimize risk of penalties

These new rules will not minimize penalty rates; they do, however, minimize the risk of misreporting. Builders’ penalties can be substantial – up to 10 per cent of the total consideration. Builders now have an opportunity to correct misreported grandparented housing sales without the risk of the CRA levying large penalties – but this time window will not stay open forever.

Next steps for builders

In previous years, builders may not have fully grasped their responsibility to report grandparented housing sales; many may also not have understood the magnitude of the misreporting penalties. Builders should consider the risk of a CRA assessment under the former rules versus the new simplified rules, as well as the significance of penalties outlined above.

Under these new measures, builders will not be required to meet the conditions of the Voluntary Disclosure Program for penalty relief.


Subscribe to our newsletters

Subscribe


HOW CAN WE HELP YOU?

Contact us by phone +1.855.420.8473 or submit your questions, comments or proposal requests


CONTACT

Maria Severino

National Tax Leader


Recent Tax Alerts

FCA emphasizes sparing use of tax remission orders in Internorth case

Remission orders as a means of tax debt relief only apply in extraordinary circumstances, as substantiated by the decision on a recent case.

  • July 17, 2019

Late filing of pre-acquisition surplus elections

The International Fiscal Association provides insight on CRA’s discretionary power to accept a late pre-acquisition surplus election.

  • July 10, 2019

Foreign affiliate dumping rules pose challenge to private equity funds

The Joint Committee on Taxation addressed key challenges private equity funds face in applying foreign affiliate dumping rules.

  • June 27, 2019

New draft legislation released on stock options tax

Draft legislations targets large, established firms with proposed cap on deductability of employee stock options.

  • June 24, 2019

Ratification of MLI moves forward

The Multilateral Instrument (MLI) takes effect on October 1, 2019, impacting businesses relying on tax treaties for their tax planning.

  • June 24, 2019