Amid Canada Mortgage and Housing Corporation projections of continued strong demand for new and existing homes, home buyers are trying to understand whether the 1 per cent reduction in GST will help make the house, semi or condominium of their dreams more affordable.

The 2006 Federal Budget introduced a 1 per cent reduction in the federal consumption tax–the Goods and Services Tax (GST). Effective July 1, if GST/HST is paid or payable, the rate of the GST and the federal component of the Harmonized Sales Tax (HST) will drop from 7 per cent to 6 per cent.

Few taxes are simple for tax payers to understand and the federal consumption tax is no exception:

• HST applies only to supplies made in or imported into the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador. The provincial component of the HST remains unchanged at 8 per cent, but the HST rate will decrease from 15 per cent to 14 per cent.

• GST applies to supplies made in the rest of Canada.

When GST/HST questions arise, contact the Canada Revenue Agency (CRA), your accountant or your financial advisor for clarification BEFORE the fact. GST is complex and even questions about when the tax is payable can be difficult to apply to your situation without professional advice.

For instance, CRA states: "The new rate of tax (GST at 6 per cent or HST at 14 per cent) applies to a taxable purchase of real property where both ownership and possession are transferred on or after July 1, 2006. There is an exception to this general rule for the purchase of a new or substantially renovated residential complex. If either ownership or possession of the real property is transferred before July 1, 2006, GST at 7 per cent or HST at 15 per cent will apply."

In an effort to simplify the transition to 6 per cent, CRA has an extensive Q&A posting on its website designed to help businesses and consumers. Before seeking CRA or professional advice, this information may address your concerns or help you understand who to contact and what to ask, for instance:

• If you bought furniture or appliances without having to make a payment until some time after July 1, 2006, you may still have to pay the 7 per cent or 15 per cent tax (Q&A 6).

• Payments made under a layaway plan are taxed differently if they are made before or after July 1 (Q&A 7).

• Retail orders made for deliveries after July 1, may trigger the lower rate (Q&A 20).

Budget 2006 sets out rules that will apply to purchases of new homes during transition to the new 6 per cent rate. Where ownership or possession transfer to the buyer, before July 1, 2006, the 7 per cent rate would apply. If the transfer of rights occurs on or after July 1, 2006, the date the Agreement of Purchase and Sale is signed may dictate the rate of GST applied:

• If the Agreement is signed after budget day, May 2, 2006, the 6 per cent rate would apply.

• If the Agreement is signed on or before May 2, 2006, and GST is based on the 7-per-cent rate, buyers will be able to claim a transitional adjustment from the Canada Revenue Agency which would be equal to the GST savings due to the reduced rate.

If you list your home before July 1, 2006 and the invoice for the service is dated before this date, you'll owe GST at 7 per cent or HST at 15 per cent, depending where the property is, even if you pay after July 1. Partial payments can add another complication. As you can see, with GST, details matter. An invoice dated after July 1, even if services were provided before Canada Day, would incur the 6 per cent rate. The real estate professional who is helping you with your purchase or sale is also a good source of information on GST and will know when the advice of your financial advisor/accountant is necessary.

A 1 per cent drop in GST sounds like a simple saving, but the complications and implications for businesses and consumers will take a while to sort out and may cost businesses some money in the process. GST is so imbedded in our economy that there will be little that is not effected. Real estate, construction and related industries will all be adjusting to the GST reduction. The government promises another 1 per cent GST rate decrease in the future.

According to the Federal Department of Finance, consumers' savings from this GST reduction will "add up to about C$8.7 billion over two years" and include GST savings like the C$1,280 a family buying a new C$200,000 home can expect. In some cases, consumers will see a 1 per cent reduction in overall cost, in others, price increases may wipe out GST savings. Organizations like banks, which carry out thousands of small transactions with consumers, may not pass GST savings on.

Sorting out GST transitional rules for the period from now until after Canada Day, may be a new way to celebrate the Victoria Day holiday which falls on the 22nd this year.

Sources: CMHC, Department of Finance, CRA

Published: May 16, 2006

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Futurist and Strategist PJ Wade is "The Catalyst" -- intent on "Challenging The Best Become Even Better." PJ earned this title by translating the dynamic impact of Boomers and their multi-generation families into relevant insights that start people thinking and taking action—in business and in life. Author of 7 books and more than 1600 published articles, PJ encourages individuals to become their own futurist. PJ writes and speaks about the insight, knowledge and solid decision-making skills that professionals and their clients need to live and work in this vortex of change. For instance, since PJ knows that home is headquarters for the new decades-long "unretirement," she wrote the popular book "Reverse Mortgages: Best Friend, Worst Enemy... Your Choice! (CatapultPublishing.com), which is filled with suggestions and insight on protecting and using home equity. Her new business book, "What's Your Point?," which identifies 7 common mistakes professionals unknowingly repeat to their detriment, will be published in 2009. As The Catalyst, PJ provides strategic communication, client appreciation and advanced education services to the financial, tourism, lifestyle and service sectors -- and the clients they serve. A frequently-quoted financial and business commentator, PJ is a thought-provoking strategic speaker who offers practical, real-life suggestions on leaving "the box" behind and embracing Forward Thinking -- a talent she regularly demonstrates in this column. For more on blogs, books and topics, visit TheCatalyst.com.