There is a lot of questions and confusion out there about how the HST affects real estate. The answer is really quite simple. It works exactly the same as the GST.
The rule is that HST is applicable to all real estate transactions unless an exemption is met. This was the same rule for GST. A term that’s been used frequently by the media recently is “resale” homes. We hear this term a lot because resale homes are HST exempt. A resale home is one that has been lived in. For example:
- A homeowner wants to sell. They have lived in their home for a number of months or years. HST applicable? No. It is a resale home and therefore exempt.
- A builder wants to sell the house he has just built. It has never been lived in by the builder, or anyone else. HST applicable? Yes.
- A builder wants to sell the house he has just built. The builder has lived in it for a short time. HST applicable? No. It is a resale home and therefore exempt.
- A builder wants to sell the house he has just built. The house has tenants residing in it. HST applicable? No. It is a resale home and therefore exempt.
These types of scenarios are the most common. What about raw land? That’s where things can get a little “gray”. Let’s try a couple more scenarios:
- A building lot, or raw land, has recently been created by a developer/property owner for the purpose of selling for profit. HST applicable? Yes.
- A property owner had originally purchased land to build their personal residence but the home was never built and the owner now wants to sell. HST applicable? No. It is exempt. Refer to the Excise Tax Act, Schedule V, Section 9.
The application of tax is not cut and dry but these could be considered general guidelines. For clarity, we always advise our clients to contact either their lawyer or accountant, or the Canada Revenue Agency’s HST Ruling Centre. I’ve spoken with representatives from this department a few times now and have found them to be extremely helpful.
One more note on HST. Rebates are applicable if certain conditions are met. These rebates will bring down the total cost of the purchase price of the new construction home. The formula is unusual but essentially with rebates, the total tax payable is only a 2% increase from the GST. Here’s an added bonus. If the new construction home was 90% complete on July 1, 2010, an additional rebate applies. The catch though is that the Buyer must be purchasing the home as their principal residence otherwise the full HST of 12% applies to the purchase price with no relief from rebates. An example of this would be an investor purchasing a new construction home with the intent to rent it out.
The media now reports that HST has slowed real estate in BC and Ontario. My belief is that if the HST has slowed real estate, it’s because of the initial lack of information provided by our government as well as media misinformation. I don’t know how many news stories I saw that had only half the facts or wrong information. Anyone hoping to buy a new construction home in the early days of July was faced with ill-informed professionals including lawyers, accountants, REALTORS® and real estate brokerage managers. With everyone in the dark about how best to deal with offers, people decided not to buy new home construction. Buyers working with a REALTOR® would have known that HST was only applicable to new construction and so that would not have deterred them from purchasing a resale home. I’m optimistic we’ll see increased sales soon as proper information is now available and understood by professionals as to the application of the tax and possible rebates, and the historically slow summer months will eventually turn into a historically busy autumn.
By Shae Webber, REALTOR®
August 18, 2010