On October 23, 2024, the Government of Nova Scotia announced a reduction in the provincial portion of the Harmonized Sales Tax (HST) from 10% to 9%, effective April 1, 2025. This change will lower the overall HST rate from 15% to 14%. To facilitate this transition, the government released a set of transitional rules on December 20, 2024, which clarify how the new rates will be applied to various taxable supplies of personal property and services.

The transitional rules specify that the applicable HST rate depends on the timing of when the supply is made and when payment is either due or paid. If consideration for a supply becomes due or is paid before April 1, 2025, the old rate of 15% applies. Conversely, if the payment is due or made on or after this date, the new rate of 14% takes effect.

1.     General Transitional Rules for Personal Property and Services

In the case of property supplied through a lease, license, or similar agreement, when a payment corresponds to a specific period of property use, a distinct supply of the property is considered to occur for each of these periods. Each supply is regarded as taking place on the earliest of the following dates:

·         the first day of the period;

·         the date the payment is due;

·         the date the payment is completed;

In case of HST collected by retailers who issue coupons that offer a fixed dollar discount on taxable goods, retailers must consider these coupons as partial cash payments, calculating HST based on the total amount prior to applying the discount. Presently, the HST is set at a rate of 15%, allowing retailers to claim an Input Tax Credit (ITC) of 15/115 for the coupon's value. However, changes will take place on April 1, 2025, when the HST will decrease to 14%, accompanied by a corresponding adjustment in the ITC to 14/114 for coupon values.

For manufacturers who provide mail-in rebates to consumers, use the HST rate and its respective tax fractions determined by the date of purchase. For items acquired prior to April 1, 2025, the applicable HST rate is 15%, which corresponds to a tax fraction of 15/115 for ITC calculations. In contrast, for purchases made on or after April 1, 2025, the HST rate decreases to 14%, leading to a revised tax fraction of 14/114. On the other hand, if a supplier decides to issue a credit to a recipient for a portion of the HST due to a price adjustment, the applicable HST rate for that adjustment will be the rate that was applied to the original supply. For instance, if the price adjustment pertains to a supply that was originally taxed at a rate of 15%, the adjustment will also be subject to the 15% HST rate.

2.     Housing and Other Real Property Situated in Nova Scotia

The transitional rules specify that for sales of newly constructed or substantially renovated residential properties, the 14% HST rate applies only if both ownership and possession are transferred on or after April 1, 2025. Conversely, if either ownership or possession occurs before this date, the higher 15% rate is applicable. This principle also extends to other types of properties, including non-residential real estate. For example, if a sale agreement is signed before the effective date but the transfer occurs after, the lower rate applies.

Moreover, specific scenarios relating to various property types and situations, such as owner-built rental housing and self-supply, are analyzed by referring to the ETA or relevant regulations. For instance, builders of rental properties will have to account for the HST based on when the self-supply occurred relative to the effective date. If the self-supply happened before April 1, 2025, the 15% tax applies; if it happens on or after, the 14% tax is applicable.