GST Applies to Some Real Estate Transactions

by P.J. Wade, Realty Times

The federal government has Canadians reaching into their wallets to pay GST on most things in life, but where does real estate fit into the GST picture?

The GST or Goods and Services Tax of 7% replaced Canada’s Federal Sales Tax on January 1, 1991. The outcry against GST did little to stop its creation and complaints continue at cash registers across Canada. GST applies to all goods and services except those that are specifically exempt. Real estate and related services fall into both categories.

(Harmonized sales tax (HST) combines 7% GST and a provincial 8% portion and applies to goods and services bought in the participating provinces of Nova Scotia, New Brunswick, and Newfoundland and Labrador.)

Real estate brokerage fees or commissions are subject to GST, but mortgage brokers are considered part of the financial services sector and therefore their fees and commissions are exempt. Real estate brokerages have the option of pricing their products and services as “GST included” or “GST not included.”

GST applies to all real estate sales and rentals with the following exemptions:

Resale residential property, except when substantial renovation has taken place.

Sales of personal use land by an individual or a trust, or of personal use farmland to a relative.

Sales and rentals by charities, non-profits and some public service organizations with some exceptions.

Residential rents, however commercial rents are usually subject to GST. The resale of cottages, condominiums, houses and apartment buildings is generally GST exempt except where the building has been substantially renovated and therefore designated “new,” that is, all of the building except the foundations, walls, floors and roof have been replaced or removed.

Intention can also be a factor in GST exemption. If a new house is purchased with the intention of resale then GST is due on the resale. However, if you have to sell your new home before you can move in because of a job transfer, the resale will probably not be subject to GST.

When you buy a new home, GST applies except when the new housing rebate applies. The amount of rebate is related to the fair market value of the property and the rules are different for owner-built and substantially-renovated homes.

Confused yet? Keeping track of who is liable to pay GST is one of many responsibilities of a real estate professional, but it’s a good idea to make sure you ask about this tax. While real estate salespeople and brokers know the general GST applications, never rely on them for the absolute word. They are the first to admit that GST is a complex financial area and one best left to accountants, tax advisors and the Canada Customs and Revenue Agency (CCRA).

If you are a buyer, the real estate professional working for you, will create clauses and conditions in any offers you make that favour you, usually that is “GST included.” Sellers have real estate salespeople working in their interests to see that these clauses do not put their client, the seller, at a disadvantage and they usually prefer to see “GST not included.” GST liability can be a bargaining point, but just be sure the extra 7% is not an unpleasant surprise on closing by keeping track of who pays.