GST on purchases / CRA Double Dipping
Summary of the applicability of GST to purchase and sales
other
This month’s newsletter is a summary of the applicability of GST to purchase and sales. Remember that you are not GST experts and should not be giving advice to your clients that GST is or is not applicable to their transaction. The most you should say is “I believe or my understanding is that GST is/is not applicable but you should confirm this with your lawyer or a GST expert”
The general rule is that GST is applicable to sales of newly constructed or substantially renovated properties. If the buyer is registered for GST they do not have to pay it, but they do have to charge it on any subsequent sale.
If the purchase price is less than $350K and the property is being bought for personal use, there is a rebate of 36% of the GST paid. Some developers credit that rebate on the adjustments by having the buyer assign the rebate to the developer. Other developers expect the buyer to pay the full GST on closing and apply themselves for the rebate. Obviously you want your deal to have the first option.
If the price is between $350K and $450K the amount of GST rebate is reduced as the price gets higher, to the point that when you reach a $450K price there is no more rebate.
For newly constructed or substantially renovated properties that the buyer intends renting out GST is payable on the sale and the rebates are just as in #1 & 2. After the buyer has rented it out he can apply for a rebate by filling out the required rebate application and sending a copy of the signed lease and other documents to the CRA.
As the re-sale market for newly constructed condos has decreased, lots of people, who had hoped to “flip” their unties before closing are having to close and are then putting the unit up for sale. They have to pay the GST on the closing. But do not assume that because the buyer paid GST to the developer, that the buyer who then sells, can sell free of GST. If the buyer, now seller, did not occupy the unit or intended to flip it when he first signed the developer’s contract, then he has to charge GST on his sale of it. If the agreement is silent as to who pays any applicable GST the buyer has to pay it if the CRA later asks for it. So the safest thing for your buyer client is for the agreement to say “price is inclusive of any applicable GST”. That way if the CRA comes asking for GST they will have to get it from the seller.
I remind agents that I offer them free short phone consultations. For clients I charge fixed all inclusive fees for transactions and will visit the client in the evening or on weekends to sign documents. My prices are inclusive of all taxes and disbursements, except for title insurance if required by the lender.
Contrary to what people think, a lawyer is not more expensive than a notary. Remember that all lawyers are notaries, but notaries are not lawyers. My experience is that as soon as there is a problem with a deal, most notaries will tell the client to see a lawyer for help. So why not start with a lawyer? I welcome the opportunity to quote on your client’s conveyance.
As well I do commercial real estate work, including leases, corporate work and wills and estates.