The Coles Notes of GST/HST and Real Estate
Nathalie Tinti, Partner Barriston LLP
45 Ann Street
Bracebridge ON P1L 2A1
There is much discussion around exempt verses taxable supply of property. I have been advised by many accountants: the rule is: everything is subject to HST unless there is a specific rule that says otherwise!
A common such exemption relating to real property is the sale of a previously occupied residential home. A residential home or “complex” is a property used for long term occupancy (normally more than 60 consecutive days) by an individual as a place of residence. There are, however, several “traps” that could exclude such residential property from exemption. The following is a brief list of things for vendors and purchasers to watch out for:
- Is the Vendor a GST/HST registrant and have they claimed an input tax credit on the last acquisition or improvement of their property?
No matter how small, or even if claimed in error, if there has been an input tax credit claimed a subsequent sale of the property is not exempt.
- Is the land being sold comprised of more than half a hectare (1.23 acres)?
Generally, ½ hectare together with the home is exempt from HST. If the property is larger than this, from a tax perspective there are 2 transfers: One, the home with ½ hectare, which is exempt; and one for the remainder of the vacant land. The HST owing is on the value of the land above the ½ hectare. There is a further exemption if the excess land is necessary for the use and enjoyment of the property (the interpretation of which may be a good topic for my next blog!).
- Is there a business currently operating on the property (mixed use?)?
A property containing a residential complex and another component (i.e. a commercial unit) are deemed to be two separate supplies. There is an exemption for the residential portion of the sale, however, the commercial property is taxable. There is, however, a further exemption if the property is primarily (more than 50%) occupied by the owner of a relative (for example, a personal residence containing a small portion used as a home office or to operate business).
- Has the property been used for short term rental accommodations?
Properties used primarily to provide short term accommodation are taxable when sold. An example of this is a cottage that is only used to provide short term rentals. If the property owner also uses the cottage primarily for their own use, the exemption likely applies.
As a general rule, if you are a purchaser of a property, you want to ensure the Agreement of Purchase and sale stipulates the HST is “included in” the purpose price. Conversely, if you are a vendor, the Agreement of Purchase and Sale should state the GST/HST is “in addition to” to the purchase price.
Most importantly, although most real estate lawyers can give you a general guide to whether GST/HST is applicable to your sale or purchase, the best practice is to call your accountant, explain your specific situation and obtain his or her advice.