February 20, 2012

PST transition rules are best possible solution for construction industry

View from the Board | Philip Hochstein

The construction industry can breathe a sigh of relief thanks to the Feb. 17 announcement of the transition rules that will take our province back to the old-fashioned Provincial Sales Tax system.

The rules were well thought out and worth waiting for – and will help the construction industry and B.C.'s economy make the tax system shift as seamlessly as possible.

Where the rubber really hits the road is in the residential homebuilding sector.

Their biggest concern after the defeat of the HST last summer was the waiting period.

New homes were subject to the HST – instead of the PST – giving people a financial incentive to put off purchases until after the PST returns.

The transition rules announced by Finance Minister Kevin Falcon get around that challenge by boosting the threshold for new housing rebates from $525,000 to $850,000. That means that more than 90 per cent of new homes will not be subject to HST during the transition period.

Once the PST comes back into place on April 1, 2013, the sales tax on new homes will be gone and builders will no longer be able to deduct the tax they paid on inputs like building materials.

It’s estimated that the PST that gets passed on will equal about two per cent of the purchase price.

The association representing residential construction – the Canadian Home Builders' Association of B.C. called the changes “fair and equitable, a huge benefit to all consumers that will spur the market” and said the boosted threshold was “out-of-box forward thinking that has “created a stable situation for all CHBA BC members who build secondary homes.”

The boost in the rebates is good news in the Lower Mainland market – and will take the tax off new properties in the $525,000 to $850,000 range.

And, remember that the rebate benefits everyone buying new construction – since tax is only paid on the portion above the threshold.

The provincial government’s rules for the transition back to the PST are also designed with the entire province in mind. ..dWhile the new housing market has remained hot in the Lower Mainland, it hasn’t been as strong in the rest of B.C. Extending the rebate to new secondary vacation or recreational homes outside the Greater Vancouver and Capital Regional District will help give the provincial housing market a boost.

For those of us in heavy construction, we know that good news for the homebuilders is good news for the entire industry – and the entire B.C. economy. New Costco’s don’t get built if new homes and new neighborhoods aren’t going up.

The HST would have had real benefits for construction in particular and the provincial economy in general. Though we have lost those benefits, the province’s transition plan makes the best of a bad situation in a way that will ensure homebuilders – and the rest of the construction industry – can keep on building well into the future.

Philip Hochstein is the president of the Independent Contractors and Businesses Association (ICBA) of B.C. Philip is also a member of the Journal of Commerce Editorial Advisory Board. Send comments or questions to editor@journalofcommerce.com.

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