GST and Real Estate

 

GST and Your New Home 

Homes Under $350,000 
Example #1:
You buy a new home for $150,000 and paid 6% GST thereon.  The 6% GST is $9,000, less a 36% rebate of $3,240. So you pay $5,760 in GST. 
1. $150,000 X 6% = $9,000 (GST)
2. $9,000 X 36% = $ 3,240 (GST rebate)
3. $9,000- $3,240 = $ 5,760 (Actual GST paid on the house)


Homes Between $350,000 - $450,000
The rebate for new homes costing between $350,000 and $450,000 declines to zero on a proportional basis, using the following formula (for GST paid at 6%):

Rebate = $7,560 X ($450,000 - Home Price) $100,000

Example #2:
You buy a new home for $400,000 with GST charged at 6%  Your GST rebate is $3,780 and the total GST owed is $20,220.
1. $400,000 X 6% = $24,000 (GST)
2. $7,560 X (450,000 - 400,000) / 100,000 = $3,780 (GST rebate)
3. $24,000 - $3,780 = $20,220 (Actual GST paid on the house)


Homes Over $450,000

New homes purchased for $450,000 or more do not qualify for the GST new housing rebate.

For new homes costing $350,000 or less, you may receive a rebate of 36% of the GST paid, to a maximum of $7,560 if you paid the GST at 6%. That means you pay approximately 3.84% (not 6%) GST on the purchase price. When you buy a newly constructed or substantially renovated house, condominium or townhouse from a builder, the entire purchase price, including land, is taxable.  However, if the home is intended for use as a primary place of residence for yourself or a relation, you may qualify for the GST new housing rebate subject to the dollar limitations as discussed below. Your REALTOR® can explain how the Federal Government defines “substantially renovated.” You cannot claim the rebate for the purchase or construction of a cottage or an investment property. For certain residential rental properties, see comments below.

 

GST and Your Owner-Built Home 

Buyers who purchase land separately may have to pay GST on the purchase price depending on the previous use of the land. If you built your home on your land or hire someone else to do so, you may qualify for the GST new housing rebate provided for owner-built houses. For more information, see Form GST191 GST/HST New Housing Rebate Application for Owner-Built Houses. You can download and print this form from Canada Revenue Agency’s (CRA) website at www.cra-arc.gc.ca/forms.

 

GST and Your New Residential Rental Property 

If you buy a newly constructed or substantially renovated residential property or you build or substantially renovate a residential property, and intend to rent out the property on a long-term basis, you may qualify for the GST new residential rental property rebate. For more information regarding this rebate, see guide RC 4231 GST/HST New Residential Rental Property Rebate. You can download and print this form from CRA’s website at www.cra-arc.gc.ca.

 

GST Transitional Rebate 
• you signed the purchase and sale agreement before May 3, 2006; and

• both ownership and possession are transferred to you after June 30, 2006.


For more information, see Form GST193 GST/HST Transitional Rebate Application for Purchasers of New Housing.  You can download and print this form from CRA’s website at www.cra-arc.gc.ca/forms.

Effective July 1, 2006, GST rate is reduced from 7% to 6%.  A GST transitional rebate is available to purchasers of a new home (which includes substantially renovated housing). You may be entitled to claim this rebate if the following conditions are met:

 

GST and the Resale Home 

GST and the Real Estate Transaction 

GST and Residential Rent 

GST and Commercial Rent 


When is GST payable? 

Generally, you do not have to pay GST on the purchase price of a previously occupied home (other than one that is “substantially renovated”). A resale of an individual’s personal residence and a resale of rental housing by a person other than a builder are normally exempt from GST. There are exceptions especially where the home was substantially used in business activities, in which case professional advice should be sought.  The qualification of property as a home is critical to the exempting provisions for residential real property. It is important to determine whether the sale of an entire property is exempt or whether part or all of the sale is taxable (or exempt under other non-residential exemptions).  Owner-occupied housing is considered a home when it is used primarily as your residence. So, if you sell your home that includes a room used as an office, the entire home still qualifies for the GST exemption. However, if your home is not used mainly for residential purposes (e.g., a retail store with a small apartment upstairs), only the residential portion is exempt from GST on resale. The nonresidential portion of the sale price is taxable. As with most taxes, there are exceptions to the GST rules regarding resale housing.  If you are planning to purchase a resale home, the seller can make a declaration on the deed stating that the property qualifies as “used” for GST purposes.
 
GST applies to most of the services provided in completing the real estate transaction. For example, 6% GST is applied to the commission a REALTOR® charges for facilitating a sale. The tax is paid by the person responsible for paying the commission – usually the seller.  REALTOR® commissions are taxable even if the sale of the property is exempt from GST. For example, if you sell a used home, the sale price is exempt from GST but the REALTOR®'s commission is still taxable.  GST also applies to many other services involved in the real estate transaction, such as fees for appraisals, referrals, surveys and legal assistance. One exception is that mortgage broker fees are exempt from GST if the fees are charged separately from other taxable real estate fees. Additionally, mortgages and interest on mortgages are GST exempt.
If you rent out a house, condominium unit or townhouse on a long-term basis, i.e., each lease lasts for at least a month, the rent will be exempt from GST. In other cases, professional advice should be sought with respect to whether a rent is subject to GST.  If you employ a REALTOR® or another professional to find and arrange a tenant for your rental property, GST applies to the fees and commissions they charge for providing this service. GST also applies to the fees charged to the landlord for property management, as well as repair and maintenance services. Monthly fees charged by condominium associations are not subject to GST.

GST applies to most of the rentals of commercial real property with exceptions in limited circumstances.  For instance, there is no GST on the rent paid to a landlord who is a “small supplier” (e.g. a person who is not required to collect GST). 

 

Sale of Real Property: 

GST on a sale of real property, other than a residential condominium unit, is payable on the earlier of the day ownership is transferred (i.e., closing date) and the day possession is transferred under an agreement of purchase and sale.  Sale of Residential Condominium Unit: Tax is payable on the earlier of the day ownership is transferred and 60 days after the condominium complex is registered as a condominium.  Leases in Writing: The GST must be paid in full no later than the invoiced due date.  If payment of the service is before the due date, the GST must be paid in full at the time of payment for services rendered.  Your REALTOR® can answer your questions about the closing date and GST payments.  For additional GST information, call CRA at 1-800-959-8281 or visit its website at www.cra-arc.gc.ca. 

 

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