HST AND HOW IT RELATES TO REAL ESTATE

Beginning July 1, 2010, a sales tax of 13% known as the Harmonized Sales Tax (HST) was implemented to replace the 5% GST (the federal Goods and Services Tax) + the 8% PST (Provincial Sales Tax).  In Ontario, the PST will only continue to exist separately from the HST with respect to some insurance premiums.
Here are 12 different real estate matters which may or may not be affected by HST:

Mortgage Brokerages

• If a mortgage broker is used to arrange a mortgage, the services will NOT be subjected to HST since mortgage brokerages are exempt as part of the financial services industry.
  
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• Real Estate Commissions:
  
• Generally, HST is payable on commission for any real estate sale closed after July 1, 2010.
• If a contract was entered into BEFORE July 1, 2010, if at least 90% of the realtor services were performed prior to that day, only the 5% GST is payable, and NO PST.
  
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• Rent Paid by Tenants:
  
• For residential tenancies, HST will NOT apply to such rents.
• For commercial condominiums (industrial, office or retail) HST will be charged on rents paid after July 1, 2010. Typically, most commercial condo owners qualify to recover such HST payments through input tax credits.
  
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• Condominium Monthly Maintenance Fees:
  
• For residential condominiums, HST will NOT apply to monthly common expenses.
• For commercial tenancies (industrial, office or retail) HST will be charged on condo common expenses paid after July 1, 2010. Typically, most commercial tenants qualify to recover such HST payments through input tax credits.
  
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• Home Renovations:
  
• Any home renovation services (including payment for labour and materials) occurring after July 1, 2010 are subject to HST.
  
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• Resale Rental and Vacation Property Purchases:
  
• HST will NOT be payable on the price if the property sold is a personal use property.
• However, if the seller had been renting out the property more than 50% of the time during their ownership, the price will likely be subject to HST
• If the property being sold was part of a rental pool (multiple rental units), HST will apply.
• It is recommended that you consult your tax accountant regarding HST on rental properties.
  
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• Residential Resale Property Purchases:
  
• HST will NOT be payable on the price of resale residential purchases.
• Resale residential purchases can be a more attractive investment than purchasing from a builder, since builder prices ARE subject to HST.
• In addition, builder deals often involve additional costs (closing adjustments) hidden in the fine print of long contracts, as well as municipal levies and sizable closing adjustments, which can also be subject to HST being added to the adjustments
  
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• Substantially Renovated Homes:
  




• If a residence being purchased has been substantially renovated, it will be treated in the same manner as buying a new construction directly from a builder, and HST will generally be applied.
• According to the Canada Revenue Agency (CRA) Bulletin B-092 states that a renovation is considered substantial if at least 90% of the interior of a building (i.e., foundation, external walls, supporting walls, roof, flooring and staircases) have been removed or replaced.
  
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• Purchase of Resale Residential Apartment Buildings (Multi-Unit Residential):
  
• HST will NOT be payable on the price of a resale apartment building (multi-unit residential buildings).
• If part of such a multi-unit residential building is commercial, the purchase price must be reasonably apportioned between the part of the building that is residential resale (HST exempt) and the commercial component (which is subject to HST).
  
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• Purchase of Vacant Land:
  
• HST will be payable on a purchase of vacant farmland if the farmland is sold alone. However, if the land is sold as part of a farming business, it can be treated differently. Consult your tax accountant for further details.
• For vacant building lots, HST will typically apply to the price when the seller is involved in a commercial real estate activity. However, some lot sale prices might be exempt from HST if the seller is not engaged in a commercial real estate activity.
• NO HST is payable if an individual sells personal use vacant land.
  
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• Assignment/ Flip Sales:
  
• Inevitably, an offer to purchase an assignment (often on an OREA form 150), by a builder will state that HST is included in the builder’s purchase price.
• Be aware that according to the CRA, there are some situations where HST WILL be applicable and payable by the assignor/seller who is assigning a contract to buy a newly constructed residence.
• When applicable, HST will be payable by the Assignor (Buyer #1 from the builder) on the portion of the assignment sale price related to the return of the deposits (paid by the Assignor, PLUS the gross profit (the difference between the builder price and the assignment price).
• HST on assignment deals are tricky, and sellers should confirm with their lawyers whether or not HST is applicable to the assignment/sale.
• Whether HST is applicable or not depends on the original intention of the Assignor when the offer to purchase from the Builder was made:
  • If the primary purpose of the purchase at the time of buying from the builder was to generate a profit, then HST WILL BE APPLICABLE.
  • HOWEVER, if the primary purpose was to use the unit for personal use by an immediate family member (i.e.,  a child or parent moving into the property, a spouse separating from the family, family choosing to downsize NOT aunts, uncles, cousins etc.) and circumstances change resulting in the Purchaser #1 assigning the sale to another purchaser, then HST WILL NOT BE APPLICABLE on the assignment deal.
    
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  • Purchase of Newly Constructed Residential Property:
    
• Builder’s Agreements Accepted Prior to June 19, 2009:
  • NO HST is payable if an offer to purchase from a builder was accepted PRIOR TO June 19, 2009 (Only GST will apply, however most builders include GST in their sale price).
• Builder’s Agreements Accepted After June 18, 2009:
  • If an offer to purchase from a builder was accepted AFTER June 18, 2009 AND either Occupancy or Final Closing occurs PRIOR to July 1, 2010, HST is NOT payable.
  • However, if both Occupancy and/or Final closing occur AFTER July 1, 2010, HST IS payable.
• If Builder’s Agreement is Silent About HST:
  • If an offer to purchase from a builder was accepted AFTER June 18, 2009 AND failed to make reference to HST, the sale price includes Ontario’s 8% PST component of the HST if it is payable(which means that the builder must pay the PST and cannot charge it to the buyer.
• For more information regarding HST on New Constructions from the Builder, please see HST Rebates When Buying From a Builder
• Additional PST and GST rebates might also be available. Please consult a tax accountant for further details.