If you are buying or selling real estate, knowing whether HST is payable (or collectible) is an essential component of the transaction. This is determined by the type and use of the property being sold.
Bottom line – the general rule is that HST is applicable to any sale of property unless it qualifies for one of two exemptions: used residential property or personal use property. This is determined by how the seller used the property, and not how the purchaser intends to use the property. The Agreement of Purchase and Sale should clearly state whether HST is included in or in addition to the purchase price. You should also get your lawyer’s or accountant’s advice regarding whether HST is payable if you are uncertain.
When buying new residential housing from a builder, HST must be paid at the rate of 13% of the purchase price. There are two applicable rebates, if you qualify: the provincial rebate, and the federal rebate. The federal rebate is 36% of the GST portion of the HST paid (5% of the purchase price), up to a maximum of $6,300. The provincial rebate is 75% of the provincial portion of HST (8% of the purchase price) that is required to be paid, up to a maximum of $24,000. This results in a total possible rebate of $30,000. To qualify, the rebate must be claimed within two years of the purchase of the new home, and the home must be used as the primary place of residence by the purchaser or their immediate family.
Often, a builder will include HST in the purchase price, with the condition that you will qualify for these rebates and assign them to the builder. This means that you will sign any required paperwork for the builder to apply for these rebates on your behalf, and they will receive the funds for the rebate.
Used Residential Property:
When you are buying or selling used residential property, the property is exempt from HST. Examples of properties that would qualify for this exemption include detached houses, semi-detached houses, rowhouses, residential condominium units, mobile homes, and multi-unit residences. To qualify, the property must be lived in as a place of residence, or if it was vacant, that it was last used as a place of residence. Note: If the property has been used as a short-term rental property, this may trigger HST. You will need to discuss this with your lawyer and accountant to assist you in determining the HST implications of the sale of this property.
Whether or not HST is payable on the sale of vacant land will depend on how the seller used the property. If the seller used the property for personal use, no HST will be payable. Personal use property includes property owned by an individual that is not used primarily in a business or sold in the course of a business. That said, if a property has been subdivided or severed, the sale by the individual of one or more of those parts will generally be subject to HST (unless the purchaser is related to the seller and buying the property for personal use).
Generally, any sale of farmland that has been used by the seller in a farming business will be subject to HST. There is an exemption where the farmer sells the farmland to a relative for his or her personal use and enjoyment. There can also be an exemption for a portion of the farmland if part of the farmland is a home and yard that has been used for personal use. When purchasing or selling farmland, we recommend that you speak with your local accountant with respect to your HST options.
Commercial Real Estate:
When buying commercial real property, HST is applicable at 13% of the purchase price. Special rules apply when the purchaser of commercial property is an HST registrant. This will allow the purchaser to not remit HST to the seller, but rather directly to Revenue Canada. This obligation to pay will be offset by the input tax credit which can be claimed by the purchaser. When purchasing or selling commercial real property, we recommend that you speak with your accountant with respect to your HST options.
If you have questions about HST and how it might impact your real estate transaction, please contact us.