HST: an additional cost for Buyers
Purchasing a residential or commercial property will in nearly all instances result in the payment of land transfer tax. However it may come with additional costs for Buyers in the form of paying additional taxes. In today’s blog post, we will discuss instances where the Buyer is responsible for paying Harmonized Sales Tax (“HST”) on the purchase of real property in Ontario.
What is “HST”?
Harmonized sales tax, otherwise known as HST, is a consumption tax charged at 13% for the sale of property or services in Ontario.
When do I have to pay HST as a Buyer?
For the purchase of a new home, Buyers will have to pay HST of 13% in addition to the purchase price of the home. Similarly, when the home has been substantially renovated from its original form, HST will be exigible on it. According to Canada Revenue Agency ("CRA"), a "substantial renovation" occurs when at least 90% of the existing building has been removed or replaced, with the exception of the foundation, external walls, interior supporting walls, floors, roof, and staircases. Therefore, it may take a significant rebuilding before one can meet the threshold of a substantial renovation.
For resale homes, that is, homes that have been owned and lived in previously, Buyers are only obligated to pay for the actual price of the home as these resale homes are exempt from HST.
With respect to any commercial real estate property or activity, HST is payable by the Buyer. However in most instances if a Buyer is an HST registrant, the vendor will not be required to collect HST on closing. Rather the Buyer will self-assess tax and will report the tax to the CRA. More information can be found in this excellent article by the Canada Revenue Agency.
HST may also be exempt in certain situations, such as in the purchase of vacant land that has been used by the seller personally, and the purchase of a share interest in a newly-built residential complex. More information on this additional exemptions can be found in this article.
It is also important to note that HST is payable on general services associated with residential or commercial real estate transactions, such as appraisals, real estate commissions, home inspection fees, legal fees, etc.
It may be difficult to ascertain which real property transaction will trigger tax obligations, therefore, it is advisable to consult a real estate lawyer, and in some cases, an accountant to give expert advice on specific facts related to each property transaction.
At Northview Law, we would love to discuss any questions you have about which of your property transactions will require you to pay HST and when you may be eligible for tax exemptions or rebates. You can book a free consultation with Northview Law by following this link, or contact us at 416-639-7639. We look forward to hearing from you soon.