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On May 2, 2006, the Minister of Finance announced proposed changes to the GST rate. Effective July 1st, 2006, the GST rate will be reduced from 7% to 6%.

With regard to the purchase price of residential properties, GST applies to the entire purchase price of newly constructed homes. Resale homes are exempt from the GST but it does apply to the real estate commissions.

How the change affects Resale homes:

If the closing date is on or after July 1, 2006 the new 6% GST rate will apply to the commissions payable. If the closing date is prior to July 1^st, 2006 the 7% GST rate will apply to the commissions payable.

How the change affects New Homes:

The reduced 6% GST rate will apply to new homes where agreements are signed on or after May 2^nd, 2006 and where ownership and possession are transferred on or after July 1^st, 2006.

The 7% GST rate will apply to new homes where agreements are signed before May 2^nd, 2006 and where ownership and possession are transferred on or after July 1^st, 2006 however; in these circumstances a transitional rebate will be available to the purchaser to account for the rate reduction.

New home purchases under $450,000 may qualify for a GST rebate, further reducing the rate payable however, some builders ‘include’ the GST in the purchase price making the rebate go back to them rather than the purchaser. New homebuyers should be aware of the GST rules in order to be prepared when making an offer on a new home.

*Note* The information above is in no way guaranteed. For detailed information contact the Canada Revenue Agency at 1-800-959-2221 or at www.cra-arc.gc.ca.

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