Is GST applicable on the sale of this property? I get asked all the time and do not usually know the answer.  GST can be complicated.   Here is an article from BCREA bulletin.

REALTORS® should be aware of the
pitfalls involved in whether Goods and
Services Tax (GST) is payable in a real
estate transaction. Unless a REALTOR®
is absolutely certain—and willing to take
the risk, if wrong—they should not advise
on whether GST is payable.
The REALTOR® should pay special
attention to the Canadian Real Estate
Association’s (CREA) Code of Ethics
and Standards of Business Practice,
which states that a “REALTOR® shall
encourage parties to a transaction to
seek the advice of outside professionals
where such advice is beyond the expertise
of the REALTOR®” (Article 10); and note
that outside professional advice includes,
“without limitation, lawyers, appraisers,
home inspectors, surveyors, accountants,
insurance agents or brokers, mortgage
consultants, land use planners and
environmental consultants”
(Interpretation 10.1).
REALTORS® should carefully consider
the implications of GST in the sale of a
property and ensure that their clients
seek expert advice as to whether GST
will be payable at the time of purchase.
The prudent starting point is that,
generally, GST is payable on ALL real
estate transactions. Because the re-sale
of residential real estate is frequently
exempt from payment of GST, there is a
common, mistaken perception that GST
is not always payable. A REALTOR® who
assumes that GST is not payable, does
so at his or her peril. A prudent REALTOR®
makes sure that GST is explicitly dealt
with in the contract.
If after a Contract for the Purchase and
Sale of real estate is entered into, it is
unexpectedly discovered that GST is
payable, unhappy results can follow:
the purchaser failing to complete,
the purchaser suing the seller or the
REALTOR®, or the REALTOR® being asked
to reduce commission to allow the deal
to proceed by partially covering the GST
liability. Leaving GST as a “detail” to be
analyzed later can result in unexpected
liability to the seller, buyer or even the
REALTOR®.
 
Below is a scenario that illustrates how
REALTORS® can be caught unaware by
the application of GST.
The used Residential exemption
Mary builds a home as part of her home
construction business and pays GST on
labour and materials. She uses her GST
number from her construction business
to claim credits on the GST paid and is
subsequently reimbursed for the GST
by the Canada Revenue Agency (CRA).
Mary then lives there for three years
before selling the home.
Neither the purchaser, Mary, or the
REALTOR® expect GST to be payable
because it is a “used residential” situation.
However, a GST liability arose when Mary
changed the use of her home from being
part of her construction business to her
personal home. As a result, when Mary
is requested to sign the “used residential”
form, she can’t state that she didn’t claim
the GST credits, so the expected exemption
is not available to the buyer. Ultimately,
all the parties are presented with potential
accounting, tax and legal issues.
As the above scenario demonstrates,
when advising purchasers and sellers of
property, REALTORS® should always keep
in mind that the effect of not determining
at the outset whether GST must be paid
can have major financial implications for
all parties, including the REALTOR®.

Senior Associate at Stikeman Elliot LLP
Bruce Woolley “Copyright British
Columbia Real Estate Association. Reprinted with permission.”

So how can we make sure that you are not going to get stuck with a bill for GST on your new Salt Spring home.  Here is the clause I like to add to the contract of purchase and sale;  The Seller will pay any GST in connection with this transaction and the Buyer will assign any rebate entitlement to the Seller.  It’s simple but to the point.  I sleep better at night with this in the contract of purchase and sale.  With new homes, vacation rentals, new lots, some farms and business subject to GST one never knows for sure and it’s better safe than sorry.  It’s wise to deal with GST in the contract not after the fact.

Cheers
Scott Simmons

Transition Year Expected for BC Housing Market
BCREA 2013 Second Quarter Housing Forecast

Vancouver, BC – May 9, 2013. The British Columbia Real Estate Association (BCREA) released its 2013 Second Quarter Housing Forecast today.

BC Multiple Listing Service® (MLS®) residential sales are forecast to edge up 1.9 per cent to 68,900 units this year, before increasing a further 6.5 per cent to 73,400 units in 2014. The five-year average is 74,600 unit sales, while the ten-year average is 86,800 unit sales. A record 106,300 MLS® residential sales were recorded in 2005.

“Stricter mortgage credit regulation combined with slower economic growth has kept BC home sales at a cyclical low over the past three quarters,” said Cameron Muir, BCREA Chief Economist. “However, a faster growing economy is expected during the second half of the year and through 2014 which will support a growth trend in provincial housing demand.”

“The BC average home price forecast is revised upward for 2013, from a decline of 1 per cent to remaining unchanged, as a result of stronger than expected market conditions in Vancouver,” added Muir. The average MLS® residential price in BC is forecast at $515,800 this year, before rising 1.7 per cent to $524,500 in 2014.

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To view the full BCREA Housing Forecast, click here.

For more information, please contact:
Cameron Muir Damian Stathonikos
Chief Economist Director of Communications and Public Affairs
Direct: 604.742.2780 Direct: 604.742.2793
Mobile: 778.229.1884 Mobile: 778.990.1320
Email: cmuir@bcrea.bc.ca Email: dstathonikos@bcrea.bc.ca

Vancouver, BC – April 15, 2013.  The British Columbia Real Estate Association (BCREA) reports that a total of 5,661 residential sales were recorded by the Multiple Listing Service® (MLS®) in BC during March, up 6.6 per cent from February on a seasonally adjusted basis, but down 17.7 per cent compared to March 2012. Total sales dollar volume was down 18.5 per cent to $3.06 billion. The average MLS® residential price in the province was $540,662, up 2 per cent from February, but down 1 per cent from a year ago.

“BC home sales in March posted the largest seasonally adjusted month-to-month increase since January 2011,” said Cameron Muir, BCREA Chief Economist. “However, homes sale per capita continue to remain near a cyclical low, suggesting that pent-up demand may be beginning to grow in the housing market.”

Year-to-date, BC residential sales dollar volume declined 22.1 per cent to $7.2 billion, compared to the same period last year. Residential unit sales dipped 18.8 per cent to 13,572 units, while the average MLS® residential price was down 4.0 per cent at $530,435.

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For more information, please contact: 

BCREA represents 11 member real estate boards and their approximately 18,000 REALTORS® on all provincial issues, providing an extensive communications network, standard forms, economic research and analysis, government relations, applied practice courses and continuing professional education (cpe).

To demonstrate the profession’s commitment to improving Quality of Life in BC communities, BCREA supports policies that help ensure economic vitality, provide housing opportunities, preserve the environment, protect property owners and build better communities with good schools and safe neighbourhoods.

For detailed statistical information, contact your local real estate board. MLS® is a cooperative marketing system used only by Canada’s real estate boards to ensure maximum exposure of properties listed for sale.

Number 460, February 2013

A BAD INSPECTION REPORT

When a buyer refuses, for a legitimate reason, to remove a subject clause because of a bad inspection report, what is the listing licensee to do with that knowledge?

This was the issue in a recent case where the court found the listing licensee liable for $47,000 in damages for failing to fully tell subsequent buyers about problems revealed in an earlier inspection report.

In Gundersen v. Savoy, the property was a modified single-wide manufactured home on land near Cranbrook¹. The sellers had built an addition to the home.

In June 2004, the sellers listed the property. In their Property Disclosure Statement (PDS), the sellers said they were not aware of any moisture problems.

In February 2005, the sellers accepted an offer subject to inspection. When the buyer received a negative inspection report, she collapsed the deal. In his report, the inspector cited some mildew in the basement under the addition. The inspector said that a vapor barrier should be installed over the exposed earth under the home, and the area treated with a solution to kill mildew. He also found that the furnace was too small. Later, the buyer’s agent told the listing licensee that the buyer collapsed the deal because the inspector reported mould in the home. With the inspector’s report in mind, the sellers took steps to repair the problem by covering the exposed earth with poly and applying a mildew-killing solution.

In January 2006, new buyers viewed the home twice. On January 29, the sellers entered a Contract of Purchase and Sale to sell the property for $178,000 to the buyers. There was no subject-to-inspection clause in the contract. The sellers also updated their PDS to certify they were not aware of any moisture or water problems in the walls, basement or crawl space.

When the buyers moved in, they discovered widespread mould and mildew. For health reasons, they apparently abandoned the home after roughly six months. The buyers sued the sellers, the listing licensee and his brokerage. The court dismissed the claim against the sellers, but found the licensee liable for deceit. The brokerage was vicariously liable for its licensee.

At trial, the listing licensee claimed that he told the buyers that the black poly was there because the earlier inspector had noticed mildew on the underside of the addition. He testified that he told the buyers that the sellers had received advice to spray underneath the floor with a solution, and to insulate and cover the area with a vapour barrier. According to the licensee, he told the buyers that the sellers had apparently remediated the mildew problem on the inspector’s instructions. He also told them the furnace was too small. The licensee testified that this was when the buyers decided to proceed without a subject-to-inspection clause.

The court, however, preferred the buyers’ evidence, rejecting the licensee’s version. The wife of the buying couple testified that when they suggested making their offer subject to inspection, the listing licensee said that an inspection had already been done, and that all was fine except the furnace was too small. She was adamant – the furnace was the only deficiency that the listing licensee told them about.

The court found that the licensee persuaded the buyers by half-truths not to seek an inspection, when he knew that an inspection would be prudent, especially given the property’s mildew history. The court said that if the licensee really believed that the seller had remediated the property, he should have told the buyers about all of the inspector’s findings. Instead, the licensee edited his information, keeping silent about that which might worry the buyers most.

Generally, whether a seller responds to a legitimate negative inspection by repairing the problem or not, the listing licensee should disclose the situation to a later buyer. The licensee should also consider whether the problem is a material latent defect within Section 5-13 of the Real Estate Council of British Columbia Rules², in which case the licensee must disclose the situation in writing before the buyer enters an agreement to buy the property.

Mike Mangan
B.A., LL.B.