As with most matters involving HST, the rules with respect to HST on real estate are quite complex.
Before buying real estate, it is in your best interest to do your homework and know the HST implications. The last thing you want is to be hit with HST on top of what you thought was the all-inclusive purchase price that you were willing to pay.
In a typical real estate transaction, there are several steps and different HST rules for each of those steps.
Mortgage broker fees
Mortgage brokers are in the financial services industry and their fees are exempt from HST.
Real estate commissions
HST is applicable to both the selling and listing agent fees. Fortunately for the purchaser, the HST is usually paid for by the seller.
The expenditures you make on parts and service will be subject to HST.
Resale of residential property
If you buy a previously occupied home, HST will not apply.
Substantially renovated home
The rules are specific, but generally speaking, the purchase of a substantially renovated home may trigger HST. As per CRA, a substantially renovated home essentially means that at least 90% of the building that existed before the renovations began must be renovated to some minimum degree. This minimum applies to the interior of the building.
Apartment buildings (multi-unit residential)
Assuming all units are residential, HST will not apply. However, if part of the building is commercial, then the purchase price must be reasonably apportioned between residential and commercial.
Newly constructed residential property
If you are the first buyer of a new build, HST will apply. It is up to the builder to either include the HST within the listed price, or add HST to the price. Naturally, this may make purchasing a resale residential property (which is HST exempt) more attractive to a buyer.
Fortunately, you may not have to pay the full 13% of HST on the purchase price, so long as you qualify for the rebates.
In order to qualify for the GST and/or PST rebates, the property must be purchased from a builder and you must use it as a primary residence. It is a requirement that it be a primary residence, but it does not need to be yours. The property can be a primary residence of yourself or a relative, being a relative by blood, marriage, adoption, and common-law. Note, blood relatives for this purpose are limited to parents, siblings, children and grandchildren.
There are two parts to the rebate claim process: the GST rebate and the PST rebate.
1. Calculated on the 5% component of the 13% HST.
2. Most of the time, the builder will include the GST in the sale price, based on the rebate being assigned from the buyer to the builder.
3. The amount of the rebate depends on the selling price of the home. It is available on the first $350,000 and is reduced to $NIL as the price increases to $450,000. More specifically, there is no GST rebate in excess of $450,000.
1. Calculated on the 8% component of the 13% HST.
2. A PST rebate is available at 75% of the 8% on the purchase price, up to $400,000. No rebate is available on the 8% PST for any part that exceeds $400,000. The rebate is available regardless of the purchase price, so long as the buyer meets all of the other conditions. More specifically, there is no phase-out or maximum purchase price thresholds for the PST rebate.
HST does not apply to residential rent, but, it does apply to commercial rent. However, commercial rent will not apply if the landlord is a ‘small supplier’ and is not an HST registrant.
The same principles apply to common element fees charged by condominium. HST applies to commercial units, and not to residential units.
Vacation residential property
Unless the property was used significantly for rental, HST will not apply. For example, a family cottage. However, this is a tricky area and the HST applicability depends on the use of the buyer and seller.
Put simply, HST applies. However, this does not have to create cash flow concerns for the purchaser. The buyer may be able to avoid paying the HST if:
1. Buyer is an HST registrant prior to closing; and
2. Buyer signs an appropriate undertaking at the lawyer’s office to become self-assessed
HST will typically be applicable in the following situations:
1. Sale of land that is capital property that had been used primarily for business purposes;
2. Sale of land in the course of a business; and
3. Sale of a parcel of land created by subdividing another parcel of land into more than two parts
HST will typically not be applicable in the following situations:
1. Sale of land that was kept for personal use; and
2. Sale to a relative, or former spouse, for their personal use of a parcel of land created by subdividing another parcel
As a general rule: If you are a purchaser, ensure the price you are willing to pay includes HST. If you are a seller, ensure the price you are willing to accept is before HST.
Caveat: The information in this publication is current as of the time it was written. This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Deuzeman & Associates to discuss these matters in the context of your particular circumstances. Deuzeman & Associates does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.