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
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
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.