Estate Planning for Blended Families

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Transcript Estate Planning for Blended Families

Still at it:
Transitioning back to GST/PST for
builders of new residential real property
Presented by:
Darren Taylor, CA, Senior Manager, Sales and Indirect Tax
The information contained herein is prepared by Grant Thornton LLP and Pushor Mitchell LLP for information purposes
only and is not intended to be either a complete description of any tax issue, legal issue or the opinion of our respective
firms. Changes in tax laws and the applicable law or other factors could affect, on a prospective or retroactive basis, the
information contained herein. You should consult your Grant Thornton LLP adviser or Pushor Mitchell LLP lawyer to obtain
additional details and to discuss whether the information in this presentation applies to your specific situation.
Agenda
1.
2.
3.
4.
5.
6.
7.
New housing transition rules
BC Transition tax and rebate
Progress payments and construction holdbacks
Non-substantial renovations
Percentage of completion (March 31, 2013)
Long term contracts and rebate issues
Accounting and administrivia
Transition Rules
New Housing Transition Rules
Transition Rules
Timing of consideration / application of tax
Basic rules re: incidence of tax
• If either ownership or possession is transferred prior to April 1, 2013, then
12% HST applies
• If ownership and possession are transferred on or after April 1, 2013 and
before April 1, 2015, 5% GST and 2% Transition Tax applies
• If either ownership or possession is transferred on or after April 1, 2015,
only 5% GST applies
• Consistent with the July 1, 2010 transition rules introduced to roll into HST.
BC Transition Tax & Rebate
BC Transition Tax & Rebate
BC Transition Tax & Rebate
BC transition tax (purchasers)
The BC Transition Tax
• Tax of 2% applies to the purchaser of a residential property where
– GST applies to sale and
– property at least 10% complete on April 1, 2013
• Generally applicable to housing sold between April 1, 2013 to March 31,
2015
– Calculated on the consideration for GST purposes
– Payable by the purchaser (same time as GST)
– Builder collects, reports and remits
BC Transition Tax & Rebate
BC transition tax (purchasers)
2% BC Transition Tax does not apply to:
– Mobile homes not affixed to land
– Floating homes
– Owner-built homes
– Contracts to construct real property (buildings only)
BC Transition Tax & Rebate
BC transition tax (purchasers)
Important considerations with BC Transition Tax
• Applies to builders in self-assessment situations
– E.g. build-to-sell, but rent instead
• Applies to short-term accommodation sold/converted to residential use
• Applies in sale from builder to builder
• Provincial tax administered by Federal government. Each have different
administrative polices regarding the application of tax to certain
structures. i.e. limited partnership with Status Indian members on reserve
land
BC Transition Tax & Rebate
Rebate (builders)
BC Transition Tax Rebate
• Builder eligible for Transition Rebate where transition tax payable:
• Construction is 10% or more complete as at April 1, 2013 and
• Closing is prior to April 1, 2015
– Amount of rebate based on degree of completion at April 1, 2013
– Builder must certify that it paid PST on substantially all of its taxable
purchases on or after April 1, 2013
• Receipts/documentation retained for audit purposes
BC Transition Tax & Rebate
Comparative example
• Builder sells new home for $500,000. Ownership and possession transfer on April 15,
2013. x>90% complete January 31, 2013.
> 90% Complete January 31, 2013
If sold
If sold
March 15, 2013
April 15, 2013
Old HST Rules
GST/PST Rules
Selling Price
$ 500,000
$
500,000
GST @ 5%
$
$
25,000
HST @ 12%
$
60,000
$
BC Transition Tax @ 2%
$
$
10,000
GST new housing rebate
$
$
- b/c > $450,000
BC new housing rebate (5%) $ (25,000)
$
- not applicable
BC transition rebate
$
$
- b/c > 90% as at April 1, 2013
Total cost to purchaser
$
535,000
$
535,000
BC Transition Tax & Rebate
Rebate to builder - % completion table
Table 1 – BC Transition Rebate to builder (general case)
BC Transition Tax & Rebate
• New residential construction, 60% complete March 31, 2013, sells July 31,
2013
Selling Price
GST @ 5%
HST @ 12%
BC Transition Tax @ 2%
GST new housing rebate
BC new housing rebate (5%)
Total cost to purchaser
BC transition rebate to builder
60% complete as at March 31, 2013
If sold complete
Date of Sale: July 31, 2013
at at March 31, 2013
Buyer
Buyer
$ 500,000
$
500,000
$
25,000
$
$
60,000
$
10,000
$
$
b/c > $450,000
$
$
not applicable to purchaser $
(25,000)
$ 535,000
$
535,000
$
2,500
.5% x $500,000 based on
60% completion
$
-
Transition to PST
Double-straddling transactions
Double-Straddling Transactions - Overview
• Special rules apply for housing agreements entered into prior to HST
implementation (July 1, 2010) and not finalized prior to PST reimplementation (April 1, 2013)
• Grand-fathered purchases (contracts prior to Nov 19, 2009):
– transitional tax (2010 tax) and transitional rebate not applicable
– BC Transition Tax deemed to be included in GST tax base
• BC Transition Tax on GST consideration of $500,000 is $9,803
($500,000 / 1.02)
– GST and GST rebate (as applicable) apply
Transition to PST
Double-straddling transactions
Double-Straddling Transactions – Overview (continued)
• For non-grand fathered purchases (contracts post Nov 19, 2009):
– General rule
• No PST rebate available
• BC Transition Tax applies
• BC Transition rebate reduced by any PST rebate taken
• GST and GST rebate (as applicable) apply
– Exception: where property substantially all completed (90%) as of July
1, 2010 and no PST rebate taken by builder:
• BC Transition Tax (and rebate) will not apply
• GST and GST rebate (as applicable) apply
Transition to PST
Progress Payments & Construction Holdbacks
Transition to PST
Progress payments
Progress payments
• Not treated as deposits
• Consideration for:
– Work completed at the time the payment is made, or
– Becomes due in anticipation of work being completed
– Likely stipulated by an agreement
• Timing of consideration/application of tax
– HST applies if consideration becomes due March 31, 2013 or earlier
– GST applies if consideration become due April 1, 2013 or later
Transition to PST
Holdbacks
Holdbacks
• Retention of payment, subject to satisfactory completion of work
• Usually in accordance with federal or provincial law
• GST/HST collectible earlier of
– Day holdback is released or
– Day holdback period expires
• GST/HST applicable (effectively) based on the percentage of the holdback
that relates to either of the GST or HST construction period.
Transition to PST
Holdbacks
Holdback - Example
• Written contract to construct a small commercial building in BC for
$1,500,000, entered into September 2012 which includes a 10% holdback
($150,000) is due June 15, 2013.
• Progress payments are:
– Pmt #1: $500,000 November 15, 2012
– Pmt #2: $500,000 February 15, 2013
– Pmt #3: $500,000 May 15, 2013
• 30% goods/services delivered before April 1, 2013
• 70% goods/services delivered after April 1, 2013
Transition to PST
Holdbacks
Result
• Total holdback due to be released on June 15, 2013 is $150,000
Amount of tax collectible
• Pmt#1
$50,000 x 12% HST
• Pmt#2
$50,000 x 12% HST
• Pmt#3
$50,000 x 30% x 12%HST
• Pmt#3
$50,000 x 70% x 5% GST
$6,000 HST
$6,000 HST
$1,800 HST
$1,750 HST
• Total remittable in June 2013 reporting period
$15,550 GST/HST
Transition to PST
Non-Substantial Renovations
Transition to PST
Non-substantial renovations
Non-substantial renovations by a builder
• Not a taxable supply to the purchaser
• Non-substantially renovated 'used-residential unit' for GST/HST purposes
Causes self-supply to the builder based on costs that are:
• Renovation or alteration to the unit
– Except financial services
– Goods/services that GST/HST were paid on (not recoverable as an ITC)
• Included in the cost base of the unit if considered to be capital property
– Wages, benefits, non-registrant contractors
•
Self-assessment reportable on line 103 of GST/HST return, based on timing of
substantial completion or date ownership is transferred to purchaser.
Transition to PST
Non-substantial renovations
Percentage of Completion @ March 31, 2013
Transition to PST
Percentage of completion
CRA GI-105 (Determining percentage of completion)
Costs that may be included in determining the percentage of completion
are those that are "necessary to put the residential complex in a position
to fulfill its function as a place of residence"
Percentage of completion
• Impacts BC Transitional Rebate factor for builders.
Transition to PST
Percentage of completion
6 CRA acceptable methods for determining %-age of completion
• Methods do not include the cost of the land
• Building by building basis
• Commercial areas and commercial common areas excluded
• Builders required to determine percentage of completion of units if unit is
x>10% complete as at March 31, 2013 (therefore, builder eligible for BC
Transitional Tax Rebate)
• Capital and operating costs
• Interior floor space
• Total floor space
• Fair market value
• Progress billings
• Certified report
Transition to PST
Percentage of completion
CRA GI-105 (Determining percentage of completion)
Examples:
• Plans, drawings, architects – integral to the construction process
• Builder's permits and development cost charges; representation costs
(local government, zoning, planning, bylaws, etc.)
• Site investigation, clearing, leveling, grading, filling, retaining walls
• Construction and inspection fees
• Legal & accounting relating to the construction
• Construction materials, services, components, foundations, landscaping
• Parking lots, water mains, sewers
Transition to PST
Other Transitional/Administrative Matters
Transition to PST
Long term contracts
Dealing with in-force and new contracts
• Existing contracts
– Where price (or tax) adjustment clauses are included, suppliers will
pass on cost of non-recoverable PST as of April 1, 2013 with an
increase in sales prices.
– BC transition rebate (builders) should relieve double taxation for
building x>10% complete as at March 31, 2013.
• New contracts
– Where price (or tax) adjustment clauses are included, same result.
– All parties should be reviewing terms of any long term contract that
will extend past March 31, 2013.
Transition to PST
Rebate Issues and Resources
Transition to PST
Rebate issues
CRA GST/HST Notice No.276 (November 2012)
• CRA extensively examines most rebate claims
• Typical reasons for delays in processing/rejection
– Purchaser not eligible/incorrect rebate claimed
• e.g. new housing rebate claimed instead of new residential
landlord rebate (same amount different forms)
– Incomplete applications/incomplete documentation
– Estimates used, not proved totals supported by invoices
– Vendor/purchaser statement of adjustments not identifying rebates
– Inconsistencies between bare trustee/beneficial ownership of real
property being sold
New Housing Rebates
Resources
CRA website resources
RC7190-BC, GST190 British Columbia Rebate Schedule
RC7000-BC, British Columbia Provincial Sales Tax (PST) Transitional New
Housing Rebate
RC7001-BC, British Columbia Provincial Sales Tax (PST) Transitional New
Housing Rebate - Residential Condominiums
RC7002-BC, British Columbia Provincial Sales Tax (PST) Transitional New
Housing Rebate - Apartment Buildings
New Housing Rebates
Resources
CRA Forms and publications
• Guide RC4028, GST/HST New Housing Rebate
• Guide RC4231, GST/HST New Residential Rental Property Rebate
• Form GST190, GST/HST New Housing Rebate Application for Houses
Purchased from a Builder
• Form GST524, GST/HST New Residential Rental Property Rebate
Application
• GST/HST Technical Information Bulletin B-092, Substantial Renovations
and the GST/HST New Housing Rebate
• GST/HST Memoranda Series Chapter 19-0, Special Sectors: Real Property
Transition to PST
Accounting and Administrivia - Life after April 1, 2013
Transition to PST
Accounting and Administrivia
BC transition rules/period ends March 31, 2015
• Sales of new residential property after March 31, 2015 not subject to BC
transition tax
• Rebates generally have to be claimed within 2 years after substantial
completion or the date the property is occupied.
• Eventually, purchase/sale agreements that close near March 31, 2015 will
need to be reviewed to ensure proper treatment outside of the 2013-2015
transition period.
Transition to PST
Accounting and Administrivia
Collection/remittance of GST
• Watch accounting rollup of GST collectible
– Separate from PST collectible if applicable.
• Reset automated billings to 5% (or 5% GST and 7% PST, as applicable)
• Employee taxable benefits
• Non-substantial renovation of real property
Collection / remittance of PST
• Use separate G/L account
• Watch for self-assessment issues on imported equipment / own-use
inventory
Transition to PST
Accounting and Administrivia
ITCs
• Ensure only 5% GST claimed as ITC going forward
• Use GST clearing accounts for each reporting period to clear G/L accounts
to $nil with each filed return.
• No recaptured ITC calculations effective April 1, 2013
• Accelerate PST-taxable equipment purchases prior to April 1, 2013
• Consider buying out operating leases prior to April 1, 2013
• Watch auto-debits
• Update employee expense report templates
Transition to PST
Questions?
Darren Taylor
T 1 604 443 2106
Grant Thornton LLP
888 Fort Street
Victoria, BC
V8W 1H8
T 1 250 383 4191
Thank You!
"The information and examples contained within these presentation materials has been prepared
by Grant Thornton LLP for information only and is not intended to be relied upon, a complete
description of any tax issue or the opinion of our firm. Changes in tax laws or other company
specific factors could affect, on a prospective or retroactive basis, the information contained
within these presentation materials. You should consult your Grant Thornton LLP adviser to
obtain additional details, to discuss whether the information in this presentation applies to your
specific situation or to obtain specific tax advice and/or a tax opinion.”