GST on Residential Real Estate

Tax Question:

How is the Goods and Services Tax/harmonized Sales Tax (GST/HST) applied to residential real estate?

Facts:

In real estate, the beneficial owner of the property has the responsibility to collect GST/ HST and remit it to the Canada Revenue Agency (CRA). If the property is held “in trust” by another corporation or entity, the beneficial owner is still required to register and file GST/HST returns. It is common for third parties such as agents or property managers to be designated to collect GST/HST on rental income. There is a special election that allows agents to remit the GST on behalf of the owner, but the responsibility is still on the beneficial owner.

Discussion:

The following types of real estate transactions that are subject to GST/HST:

• Sales of new residential properties

• Substantial renovations of used residential properties by a builder

• Self-supply of a new residential property

• Residential property used for commercial purposes.

The following types of real estate transactions that are not subject to GST/HST:

• Sales of used residential properties

• Long term rentals of residential properties • Renovations by “non-builders”

• Bare land may be exempt

• Sales of personal-use property by an individual are exempt such as vacation property or hobby farms.

There are GST rebates available on purchase of new homes and completion of eligible rental properties. However, the rebate only applies if the purchase price does not exceed a fair market value of $450,000.

There are additional provincial rebates that may apply as well.

A GST/HST registrant that sells residential real estate, may be eligible to claim GST/ HST paid as input tax credits as well.

Source: Gilmour Grant Chartered Accountants