Which federal tax applies to the purchase of a newly constructed home in British Columbia?

Q: What is the correct answer to: Which federal tax applies to the purchase of a newly constructed home in British Columbia?

The correct answer is GST at 5%. Option B is correct because newly constructed homes in BC are subject to GST at 5%, which is a federal tax. BC reverted from the HST to the GST+PST system on April 1, 2013. Under the current system, the 5% GST applies to new homes, substantially renovated homes, and commercial-to-residential conversions. PST does not apply to real estate transactions.

Q: What background knowledge is needed for this Real Estate Taxation question?

In BC's current tax system, new residential construction is subject to 5% GST. Resale homes are exempt from GST because the tax was already paid when the home was originally built. Buyers of new homes may be eligible for the GST New Housing Rebate, which can reduce the effective GST rate for homes priced under $450,000 (with a partial rebate for homes between $350,000 and $450,000). The rebate can return up to 36% of the GST paid.

Q: What is a good way to remember the answer to this Real Estate Taxation question?

For new homes in BC: GST at FIVE percent applies. PST does NOT apply to real estate. HST is HISTORY (ended 2013). Remember: 'Five for new, none for PST, HST is history.' When the exam asks about tax on new construction, the answer is GST at 5%. Eliminate PST (doesn't apply to real estate), HST (ended in 2013), and any GST rate other than 5%.

Q: What exam tip applies to this Real Estate Taxation question?

Three key facts: (1) GST at 5% applies to new homes, (2) PST does not apply to real estate, and (3) BC no longer has HST. If you remember these three facts, you can quickly eliminate wrong answers.

Q: How does this Real Estate Taxation concept apply in real world practice?

A buyer purchases a newly built detached house in Surrey for $850,000. In addition to the purchase price, they must pay 5% GST = $42,500. Their lawyer explains that if the home were priced under $350,000, they could receive a GST New Housing Rebate of up to 36% of the GST paid, but at $850,000, no rebate is available.

Question

Real Estate TaxationBCEASY

Which federal tax applies to the purchase of a newly constructed home in British Columbia?

Answer Options

A

PST at 7%

B

GST at 5%

C

HST at 12%

D

GST at 7%