GST/HST on the Sale of Your Home Office

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A Common HST Mistake

A common and very expensive mistake made by the vendor of a used residential property is that the vendor assumes that the sale is exempt from HST.  The reason for the error is that in fact most sales of used residential property are HST exempt, however not all sales.

The most common example of HST applying is where a house or condo that is normally used for residential purposes has been converted to business or professional use.

An example is where a doctor buys a house on a busy street and gets it rezoned as his/her professional office.  If the house is someone’s home prior to the purchase, then no HST would have been paid on the purchase.  On the eventual sale the doctor would be required to charge the new buyer GST/HST.  In most cases the new buyer is only willing to pay one total price regardless if HST is part of the price, so the result is that the vendor ends up incurring the cost of the HST.  In Ontario that means a cost of 13%.

The HST is often a surprise

When selling your office/house most vendors consult their real estate agent and maybe their lawyer.  Neither of these professions are HST specialists.  Your real estate agent is very careful to insert a paragraph in your purchase and sale agreement that tells you to get your own tax advice.

Most purchasers include a clause in the purchase and sale agreement that says “GST/HST if applicable is included in the price”. That means that if HST is applicable the vendor will be the one paying it.

Vendor’s often try to get out of remitting the HST by claiming the house is a used residential property.  On closing they will represent that the property is used residential.  There are lots of problems with this approach including:

  • Your lawyers will not let you lie on a document that they are associated with.
  • There is often lots of evidence to show that the house was used in a commercial venture including such things as zoning, business listing, google map
  • CRA audits this transaction – all real estate transactions are registered. It is very easy for CRA to check the land registry office and follow up on sales.

The Purchaser is often the winner

Many time I have been able to tell the uninformed purchaser that they have just benefited from a 13% reduction in the purchase price.

Where the purchase is going to use the property as their home, they can applied for Ontario and Federal HST rebates.  Where they are using the property for commercial purposes they can either get the original transaction price reduced by 13% or they can claim the HST back on their next HST return.