UNDERSTANDING INSTANCES WHERE HST IS PAYABLE IN THE CONTEXT OF REAL ESTATE TRANSACTIONS IN ONTARIO
In Ontario, Harmonized Sales Tax (HST) is generally payable on the purchase price of real property, subject to certain exceptions. Examples of circumstances when HST is payable on the purchase price of real property include the following:
- If the real property is a residential new build purchased from a builder or if the residential property has been substantially renovated;
- If the real property being purchased is a commercial property (option to self-assess after closing for HST registrants); and
- Land used primarily in a business prior to its sale.
As a purchaser, if HST is payable on the target property, the seller must include in the agreement of purchase and sale whether HST is included in or in addition to the purchase price of the property. In certain situations, HST may be exempt from the purchase price of real property. Examples of when HST is not payable on the purchase of real property include:
- The sale of used residential properties; and
- The sale of personal use vacant land.
It is important to note, purchasing real property that is exempt from HST does not mean that the entire transaction is exempt from HST, legal fees and disbursements, and commission fees for the real estate broker may still be subject to HST. It is possible that in certain situations HST will be payable on a portion of the purchase price. For example, when the real property is being used as the buyer’s principal residence and a portion is used as a commercial business, then HST will be payable only on the portion of the purchase price related to the commercial business.
Below you will find further information on scenarios when HST is payable on the purchase of a new-build home. For more information on when HST is payable on real property, visit the Government of Canada’s website.
HST ON NEW-BUILD HOMES INTENDED AS THE PRINCIPAL RESIDENCE OF THE BUYER
In Ontario, home buyers may be eligible for certain federal and provincial GST/ HST rebates for new-build homes if they meet certain criteria. To be eligible, home buyers must use the property as their principal residence and file the necessary forms with the Canada Revenue Agency. If the property will be used as their primary residence, the buyers are generally able to assign the rebate to the builder on the day of closing, thus getting a reduction of the purchase price reflected on the statement of adjustments. The builder will typically request that the buyers provide a statutory declaration to the effect that the property will be used as their principal residence. The buyer will also have to sign the relevant Canada Revenue Agency form, assigning the rebate to the builder. As of February 2023, the maximum GST/ HST rebate available is $24,000.00 for the provincial rebate and $6,300.00 for the federal portion if you paid 13% HST. It is important to note if the buyer misrepresents their intentions in regard to using the property as their principal residence and claims the GST/ HST rebate, the Canada Revenue Agency may, among other things, revoke the rebate and charge the buyer(s) an amount equal to the rebate received.
HST ON REAL PROPERTY INTENDED AS A RENTAL INVESTMENT PROPERTY
In Ontario, home buyers intending to use the real property as a rental investment property may be eligible for certain federal and provincial GST rebates if they meet certain criteria. To be eligible for the New Residential Rental Property Rebate (NRRP), home buyers must have a tenant with a signed lease for at least one year. Upon close, if a tenant is taking possession, the buyer must pay HST in full, and apply for the rebate once the transaction has been completed. An application to the Canada Revenue Agency for the NRRP should include a signed agreement of purchase and sale, the statement of adjustments, and the rental or lease agreement, as well as specific forms required by the Canada Revenue Agency. We recommend that an experienced accountant or lawyer be hired for the purpose of making the application and filling out the appropriate forms. Once the application has been approved by the Canada Revenue Agency, the buyer will be credited an amount equal to the rebate. As of February 2023, the maximum GST/ HST rebate available is $24,000.00 for the provincial rebate and $6,300.00 for the federal portion if you paid 13% HST.
If you are unsure whether you qualify for an HST rebate in a real estate transaction, contact us today to set up an initial consultation. Our real estate law team has the experience and knowledge to assist you throughout every step of the transaction.
Disclaimer: The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please contact us.
About the Author:
Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here.