When purchasing real property in Canada, it is important to be aware of how taxes may apply to the purchase price. Various taxes are involved in these purchases, including Goods and Services Tax (GST) or Harmonized Sales Tax (HST) in certain provinces. GST/HST taxes are also relevant to several other real estate matters, not just purchases. Sellers, buyers, and real estate agents should all be aware of the implications of GST/HST on real estate in Canada. If you are unsure whether you are obligated to pay or collect GST/HST taxes on a real estate transaction, you can learn more by contacting experienced Canadian tax lawyer Jeremy Scott at (902) 403-7201.
The GST/HST generally applies to purchases of newly built residential real property and most types of commercial real property. However, purchases of used resale residential properties are typically exempt from the GST/HST. This means that someone who purchases a home from the previous homeowner will usually not owe these taxes, but a family that decides to build their own home will be obligated to pay GST/HST.
No such distinction exists regarding the GST/HST obligations involved in commercial real estate transactions. In these deals, GST/HST is due regardless of whether the property being purchased was newly built or already existed with previous tenants.
There are however many nuances to these rules, so it is important to fully review the facts of a particular transaction to determine if GST/HST will apply.
While buyers and sellers of residential resale homes may not be obligated to pay GST/HST on the purchase price, the Canda Revenue Agency requires payment of these taxes on several types of services involved with the transaction:
- Real estate commissions – Home sellers who use a real estate agent will need to pay GST/HST taxes on the commission fee paid to the agent.
- Legal fees – Those who hire a real estate lawyer or tax lawyer for assistance with the transaction will owe GST/HST taxes on the amount charged by the lawyer.
- Home inspection fees – Buyers are required to pay GST/HST taxes on the amount paid for home inspections before closing the deal.
- Moving costs – Moving costs will most likely be subject to GST/HST
Both buyers and sellers should consider how the GST/HST will impact the overall cost of purchasing the property.
The HST is in effect in five Canadian provinces, and the rate at which this tax is applied varies depending on the province:
- Ontario – HST at a rate of 13%
- Novia Scotia, New Brunswick, Newfoundland and Labrador and Prince Edward Island – all have HST at a rate of 15%.
The GST is in effect in all other provinces and territories at a rate of 5%.
If you have questions related to GST/HST on real estate in Canada or another Canadian tax matter, you can learn more about how these taxes apply by contacting experienced Canadian tax lawyer Jeremy Scott.
Certain services and transactions related to real estate sales are exempt from the HST:
- Mortgage service fees are exempt from the GST/HST because businesses in the financial services industry are not required to pay these taxes.
- GST/HST does not apply to rents paid by long term residential tenants. (HST is typically charged on commercial tenancies as well as short term residential rentals such as hotel charges).
- Residential condominium monthly common expenses are not taxable under GST/HST, but the GST/HST does apply to commercial condo common expenses – such as those in retail, office, and industrial spaces.
In Canadian real estate transactions, the buyer and seller have the option to include the GST/HST as part of the purchase price. The Excise Tax Act R.S.C., 1985, c. E-15 states that the buyer is responsible for paying the GST/HST that applies to a sale. The contract agreed upon by the buyer and seller can stipulate that the GST/HST is included in the purchase price. But without such a provision, the buyer will be responsible for paying the GST/HST on top of the purchase price.
A recent Ontario Superior Court ruling in the case of Stanziano, G. v. Wolfe, V.J. (ONSC) cited this portion of the Excise Tax Act when ruling in favor of the seller (applicant) in a real estate transaction dispute regarding the HST. The buyer (respondent) attempted to back out of a sale by arguing that the HST implications were not clear in the contract. However, the court ruled that the language in the Agreement of Purchase and Sale (APS) was “clear and unambiguous.”
In most cases, the GST/HST does apply to home renovations. This tax is applied to the total cost of the renovations, including all hired labour and materials.
GST/HST also applies to substantially renovated homes, as such properties are legally considered the same as a newly constructed home, rather than a resale residential home.
There are differing GST/HST implications for the buying and selling of vacant plots of land, sometimes based on the prior use of the properly, and sometimes based on who is selling the property. A few examples include:
- Building lots – Transactions involving building lots are generally taxable under the GST/HST legislation. In some cases, lot sale may be GST/ HST exempt if the seller is an individual and meets certain use conditions for the property.
- Farmland – The GST/ HST generally applies if a piece of farmland is sold, however the transfer of farmland to the personal use of a farmer can sometimes be done on a tax-free basis.
Real estate transactions in Canada often involve several complex taxes, including HST in five provinces and GST in the others. When conducting a real estate transaction, all parties involved should be aware of the implications of GST/HST on real estate in Canada. At Jeremy Scott Law, we help our clients understand how to best handle their tax obligations in a variety of matters, including real estate transactions. Contact Jeremy today at (902) 403-7201 for legal guidance on your tax situation.