GST/HST on the Sale of Your Home Office

Related image

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.

GST/HST on the Sale of a Condo Parking Space

Image result for parking spots condo

Who is responsible GST/HST

It is very important that you determine if GST/HST is applicable on the sale of your condo parking spot before you sign your sales agreement.  On most sale transactions, the exposure to GST/HST is assumed by the vendor when the agreement says “GST/HST, if applicable is included in the purchase price.”

In Ontario, if HST is applicable, then the vendor may end up being required to remit 13% of the proceeds to the CRA.

Is there GST/HST on the sale of a parking spot

In most cases, GST does not apply to the sale of used residential property.  We will examine exemptions in a future article.

This article will address how GST/HST applies when you sell a parking space in a residential condominium.

In most cases, the parking spot is sold together with the used residential condominium unit.  When that happens, there should be no HST on the sale.  In most cases, both the condo and the parking space are exempt (see Excise Tax Act Schedule V, Part I, section 8).

Sale of just condo parking space

The exposure to HST occurs when you sell a parking space on its own.  The above exemption is no longer relevant and GST/HST is applicable on the sale.

Where neither party is registered, the vendor must collect GST/HST on the sale, file a return, and remit the tax to the Canada Revenue Agency.

The vendor is the one responsible for ensuring that the GST/HST is paid to the CRA.  Who ultimately is responsible for the tax depends on how the contract is worded.  As noted above, most residential agreements of purchase and sale put the liability in the hands of the vendor, however if the contract says that the purchase price excludes GST/HST, then the purchaser may be liable.

The vendor must file form GST 62 non-personalized HST return and pay the net HST by the end of the month following the sale (Excise Tax Act 168(3)).

It is possible that the vendor could reduce the amount of the tax payable to the CRA on the sale if the vendor paid GST/HST on the original purchase.

The amount of the HST rebate will depend on original purchase price and the tax rate at the time of purchase.  If the property has increase in value, the rebate will equal the GST/HST paid on the purchase.  If the value of the property has gone down, then the vendor can only claim a proportional amount of the tax.

To claim the rebate the vendor should complete GST/HST General Rebate Application form GST189, within two years of the purchase.

Real Estate Agents are not GST/HST experts

In most cases the vendors did not realize that they were exposed to this GST/HST liability.  Their real estate agents did not tell them and they did not ask their accountant.

In most sale agreement is specifically says that your real estate agent is not providing tax advice.