Harmonized Sales Tax or HST, was implemented on July 1, 2010, harmonizing the Federal GST of 5% with the Provincial PST of 8% into HST of 13%.
The HST can form a large part of the Home Closing Costs or Home Legal Costs in your Purchase Transaction. Depending on your type of property purchase, the HST implications may differ. The following is a brief summary on HST to be paid on closing. You are advised to speak to a real estate lawyer to clarify the HST payable on your purchase transaction.
Purchase of a Used Resale Residential Properties
For Purchases of used resale residential properties, the transaction is generally exempt from HST under the Excise Tax Act. Your purchase price in your Agreement of Purchase and Sale should be inclusive of HST.
Purchase of a Newly Built Residential Property from a Builder
HST will apply to the purchase of newly constructed houses and condominiums when the closing occurs after July 1, 2010. For purchases of newly built residential houses or condominiums, the purchase price on the Agreement of Purchase and Sale with the Builder is generally already inclusive of HST and an HST New Housing Rebate for persons who purchase new homes to use as a primary residence.
If you are purchasing a newly built property from a Builder as an investment and you do not move into the property, you are not eligible for the HST New Housing Rebate portion of the Purchase Price. In this scenario, you will have to repay the lost HST New Housing Rebate to the Builder as an adjustment on final closing. For properties with a Purchase Price of over $450,000.00, the HST New Housing Rebate amount lost is likely to be approximately $24,000.00. If the Property’s purchase price is less than $450,000.00, then the rebate can range from $20,000.00 to $30,000.00.
While you are not eligible for HST New Housing Rebate when you are buying for investment, you will be eligible for an HST Rental Rebate, if you enter into a lease to a Tenant to move into the property for at least a one-year period and apply for the HST Rental Rebate within 2 years of your final closing. The HST Rental Rebate is in the same amount as the lost HST New Housing Rebate that you would have paid to the builder as an adjustment on closing.
You are advised to speak to a real estate lawyer about the HST Rebate applicable to your purchase from a Builder.
Purchase of a Newly Built Residential Property on Assignment from a Builder
The same rules apply when you buy from a Builder on Assignment. The purchase price on the Agreement of Purchase and Sale with the Builder is already inclusive of HST and an HST New Housing Rebate. However, there are some cases where the Builder will not credit the HST new Housing Rebate on closing as a result of an Assignment, despite the eligibility of the Assignee/Purchaser for the Rebate. If you are buying on Assignment and the Builder does not credit you the HST New Housing Rebate, you will need to pay the same to the Builder as an Adjustment on final closing.
To recover your HST New Housing Rebate, you will need to apply for the HST New Housing Rebate yourself after final closing with the Builder. To be eligible for the same, you will need to have acquired the property with the intention of moving into the property and that you will have actually moved into the property after closing with the Builder. Please note that if the Assignor had used the property for rental purposes after taking possession on occupancy, it will affect your eligibility for the HST New Housing Rebate and it is important to ensure the Assignor has not done so.
If you are buying on Assignment for investment purposes, you will need to obtain an HST Rental Rebate by entering into a lease to a Tenant to move into the property for at least a one-year period and apply for the HST Rental Rebate within 2 years of your final closing.
You are advised to speak to a real estate lawyer about the HST Rebate applicable to your Assignment purchase.
Purchase of a Commercial Property
HST applies to purchases of commercial real estate. If you are purchasing property through a Corporation, you may choose to remit HST payable directly to the Canada Revenue Agency after closing and sign an HST Indemnity to be provided to the Seller on closing. To do so, your Corporation must have an active HST Number on the day of closing.
If you do not have a valid HST Number on closing or you do not provide an HST Indemnity, the Seller will charge the HST on closing to be remitted to the Canada Revenue Agency.
After closing, you will need to work with your Accountant to determine if there is any HST due payable to the Canada Revenue Agency to be remitted and self-assessed after the closing of the transaction.
Purchase of a Business (Asset Purchase)
On an asset purchase of a Business, HST is due payable on the business being sold. However, the if both the Vendor (supplier) and the Purchaser (recipient) have a valid HST Number and are both HST registrants, the parties would be eligible to jointly elect so that the HST does not apply to the supply of the business.
An HST Election can be jointly made by the Vender and the Purchaser if:
- The Vendor sells the business or part of it that was established by the Vendor or was established by another person and acquired by the Vendor.
- Under the Agreement of Purchase and Sale, the Purchaser acquires ownership, possession, or use of all, or substantially all (at least 90% or more), of the property necessary for the Purchaser to be capable of carrying on the business or part as a business.
- Both the vendor and the purchaser are HST registrants with a valid HST number.
Other HST to be paid on all types of transactions
For any type of real estate transaction, you will need to pay HST on the commission payable to the Real Estate Brokerage on the closing of a sale transaction. You will also need to pay the applicable HST on your Legal Fees due payable to your lawyer for completing the transaction. HST is also paid for your title insurance policy that is obtained for your purchase or refinance closing.
The aforementioned is a non-exhaustive list and you are encouraged to speak to one of our real estate lawyers to discuss any HST applicable to your real estate purchase or real estate sale transaction. Call us today to set up an appointment or to ask for a quote for your real estate closing.