Canada Revenue Agency (CRA) has been sending letters out to builders pertaining to the 2016 Federal budget, asking them to complete the RC4617 http://www.cra-arc.gc.ca/E/pbg/gf/rc4617/README.html. Making this election extremely important for home builders.
When the GST and PST harmonized July 1, 2010, certain sales of newly constructed or substantially renovated homes were grandparented. These grandparented houses were houses in Ontario sold under agreements entered into before July 19, 2009, where neither ownership nor possession transferred before the harmonization date, July 1, 2010. These grandparetned houses were not subject to the provincial portion of the HST when they closed.
The vendors of these grandparented houses had special reporting which required them to report the value and number of units sold when the purchasers were not entitled to claim the GST/HST new housing rebate or a GST/HST new residential rental property rebate on their GST/HST returns. The penalties for failure to report these sales could be up to 10% of the total consideration paid for the grandparented homes plus $250 per housing unit.
It has become clear after harmonization that these reporting requirements may have been missed by many a home builder.
Below is the blurb from the 2016 Federal budget regarding the changes.
Reporting of Grandparented Housing Sales
Under the transitional rules that applied when a province either joined the harmonized value-added tax system since 2010 or increased its HST rate, certain sales of newly constructed or substantially renovated homes were grandparented for HST purposes. This meant that the housing sale was not subject to the provincial component of the HST or the increased HST rate, as applicable. A housing sale was generally grandparented if the agreement of purchase and sale was entered into in writing on or before the announcement date of the transitional rules and ownership and possession of the housing was transferred on or after the date on which the HST, or the increased HST rate, came into effect.
Under the current rules, builders are subject to special reporting requirements, which involve reporting their grandparented housing sales where the purchaser was not entitled to a GST New Housing Rebate or a GST New Residential Rental Property Rebate. The rules also include penalties for misreporting (i.e., under-reporting, over-reporting or failing to report).
Budget 2016 proposes to simplify builder reporting by:
- limiting the reporting requirement to those grandparented housing sales for which the consideration is equal to or greater than $450,000; and
- providing builders with an opportunity to correct past misreporting and avoid potential penalties by allowing them to elect to report all past grandparented housing sales for which the consideration was equal to or greater than $450,000.
This measure will apply in respect of any reporting period of a person that ends after Budget Day. In addition, if the above election is made, the measure will also apply to any supply of grandparented housing in respect of which the federal component of the HST became payable on or after July 1, 2010. Builders will generally have between May 1, 2016 and December 31, 2016 to make the election.
So what does this all mean? The budget proposed to simplify the reporting by limiting it to those grandparented housing sales sold for consideration equal to or greater than $450,000. Also, this form would allow for builders to correct past misreporting avoiding potential penalties by electing to report all past grandparented housing sales, for which consideration was equal to or greater than $450,000 in a reporting period ending after April 30, 2016, and before 2017.
For all home builders, they should review their sales of grandparented homes made after June 30, 2010, to determine whether they were properly reported on Schedule A of their GST/HST return. If there were errors or omissions on their original filings, it is imperative that they make this election between now and December 31, 2016. If the election form is not filed by the end of the year, protection against the penalties will likely not be available.
If you have any questions, you can contact DJB’s GST/HST team for further information.
Article written by: Greg Sawatsky, MAcc, CPA, CA