Tuesday, June 15, 2010

HST? - How It Affects 12 Matters In Ontario 
Real Estate

(This article reproduced from an article published by Stephen Shub a lawyer in the GTA )

HST? - How It Affects 12 Matters In Ontario 
Real Estate

Beginning July 1, 2010, there will be sales tax in Ontario
of 5% + 8% = 13% (12% in British Columbia) replacing 
the former 5% GST (Goods and Services Tax) and the 
former 8% PST (Provincial Sales Tax).

1) HST and Mortgage Brokerage Fees (to arrange 
a mortgage, if one uses a Mortgage Broker)
HST will not apply since mortgage brokerage services are 
exempt as part of the financial services industry.

2) HST on Real Estate Commissions
Generally, HST will be payable on commissions for any 
real estate sale closed after July 1, 2010. However, the 
general transitional rule (for sale contracts entered into 
before July 1, 2010), is if at least 90% of the services 
were performed prior to July 1, 2010, only 5% GST is 
payable (no PST). If an offer to purchase real estate was 
accepted prior to July 1, 2010, then the realtor services 
were performed prior to July 1, 2010, and only 5% GST 
should be payable even though the realtor’s commission 
is not due for payment until the sale has closed after July 
1, 2010. Warning to sellers: If, prior to July 1, 2010, a 
seller is about to accept an offer to purchase (which will 
close after July 1, 2010), the seller should clarify 
in writing with the realtor that only GST will be payable
on commissions due on a sale closing after July 1, 2010.

3) HST and Rents Paid by Tenants
For residential tenancies, HST will not apply to such rents. 
For commercial tenancies (industrial, office or retail), HST 
will be charged on rents paid after July 1, 2010 (but most 
commercial tenants qualify to recover such HST payments 
through input tax credits).

4) HST and Condominium Monthly Maintenance Fees
For residential condominiums, HST will not apply on 
monthly common expenses, but HST is payable for 
commercial (retail), office, industrial) condo common 
expenses paid on or after July 1, 2010 (most commercial 
condo owners qualify to recover such HST payments 
through input tax credits).

For any part of services (labour and materials) provided 
after July 1, 2010 (no matter when a contract for 
renovations of a residence was signed), the part performed 
or provided after July 1, 2010, will be subject to HST.

HST will not be payable on the price if the property sold 
by the seller and bought by the buyer is personal use 
property. However, if the seller had been renting out the 
property more than 50% of the time during the seller’s 
ownership, the price will likely be subject to HST. If the 
property being sold was part of a rental pool, HST will 
apply. Consult your tax accountant.

There will be no HST on the price of resale residential 
purchases. Note: Resale residential purchases will 
therefore become a much more attractive investment 
(rather than buying from a builder) particularly when one 
considers that builder prices will result in 13% HST 
(whether built into the price or being structured in 
addition to the price by some builders in Ontario).

Builder prices also must include higher increased current 
costs of labour, materials and land costs as well as 
substantial municipal levies and educational levies 
plus sizable closing adjustments (often being hidden by 
builders in the fine print of many pages in a builder’s 
agreement), all of which are not payable by a buyer / 
investor who purchases resale residential property. 
(Think about it!)

If a residence being purchased has been “substantially 
renovated”, it will be treated in the same manner as 
buying new construction from a builder and HST will 
generally apply to the price paid. See Canada Revenue 
Agency (CRA) Bulletin B-092 which states that a 
“substantial renovation”, in effect, refers to a renovation 
where at least 90% of the interior of a building 
(excluding the foundation, external walls, internal 
supporting walls, roof, floors and staircases) has been 
removed or replaced.

BUILDINGS (Multi-Unit Residential)
No HST will be payable on the price of a resale apartment 
building (multi-unit residential). If part of such a building is 
commercial, the purchase price must be reasonably 
apportioned between the part of the building that is 
residential resale (HST exempt) and the other part of the 
building that has a commercial component, which part will
be subject to HST.

(new or resale commercial properties 
closing after July 1, 2010 no matter when an offer
was signed) HST will apply to the purchase price; however, typically,
buyers who obtain a GST registration prior to closing 
(must be registered for GST in the same manner as 
ownership will be taken) will not need to pay the HST on 
closing provided:

(a) a GST registration is obtained prior to the closing date and

(b) the buyer signs an appropriate undertaking in the 
lawyer’s office to become self-assessed.

Note: Watch out for the purchase of office condominiums,
industrial condominiums, and retail condominiums, the 
price for which will be subject to HST (being subject to 
only GST on the price for closings prior to July 1, 2010).

(a) Farmland
: HST will typically apply to the price of such land if farm 
land is sold alone; however, if the land is sold as part of 
a farming business, it can be treated differently. Consult 
your tax accountant.

(b) Building Lot: 
HST will typically apply to the price when the seller is 
involved in a commercial real estate activity; however, 
some lot sale prices might be exempt from HST if the 
seller is not engaged in a real estate commercial activity.

(c) Personal Use Of Vacant Land
: No HST is payable if an individual sells personal use 
vacant land (which would have been exempt from GST).

(a) Builder’s Agreement Prior to June 19, 2009:
No HST is payable if an offer to purchase from a builder 
was accepted prior to June 19, 2009 (only GST will 
apply; however, most builders include GST inside the sale 
price). Note: Buying by way of an assignment (where the 
builder sale agreement was signed prior to June 19, 2009) 
becomes attractive!

(b) Builder’s Agreement Accepted after June 18, 
If an offer to purchase from a builder was accepted after 
June 18, 2009 and either occupancy closing (for a new 
condo purchase) or final closing occurs prior to July 1, 
2010, HST is not payable; HST is payable if both 
occupancy (in a new condo purchase) and final closing 
occur after July 1, 2010.

(c) If Builder’s Agreement Silent about HST
If an offer to purchase from a builder was accepted after 
June 18, 2009 and failed to make reference to HST, the 
sale price includes Ontario’s 8% PST component of the 
HST if it is payable (which means that the builder must 
pay the PST and cannot charge it to the buyer).

(d) GST Rebate (calculated on the 5% GST part of 
the 13% HST)
Typically, most builders include the GST component of 
HST (being 5%) in the sale price based on the government 
GST rebate being assigned from the buyer to the builder 
(such GST rebate being 36% of the GST payable on the 
first $350,000.00 which is reduced to NIL as the price 
increases from $350,000.00 to $450,000.00, there being 
no GST rebate after $450,000.00).

Note: In order for the GST rebate to be assigned to the 
builder by the buyer, the buyer must qualify by the buyer 
or an immediate family member living in the unit. If not 
qualifying (such as an investor who will be renting out the 
unit), the rebate cannot be assigned to the builder and the 
builder will charge the cost of such unassignable rebate to 
the buyer on closing in addition to the purchase price, 
which results in the buyer being forced to make a separate 
application to the federal government to recover such 
rebate. To qualify for recovery of such rebate, the investor 
must own the unit for at least one year and reasonably 
expect to rent the unit to the initial tenant for one year. 
An investor need not wait the year to apply for and obtain 
the rebate but if the government later discovers that 
ownership was less than one year, the government might 
seek to recover the rebate paid to the investor.

(e) PST Rebate (calculated on the 8% PST 
Component of the 13% HST)

Warning: All builder agreements should be reviewed by 
a lawyer either before a buyer signs an offer or during 
any available cooling off period since some builder 
agreements require buyers to pay the 8% PST (or the 
Net PST) component of the HST in addition to the 
purchase price.
Regarding a PST rebate, only 75% of the 8% PST 
component of the HST is refundable to a buyer on 
the part of the purchase price that is up to $400,000.00 
(being newly constructed from a builder since there is 
no HST on resale residential property). There is no 
government rebate on the 8% PST for the part of 
any price that exceeds $400,000.00! This means that 
75% of 8% (being 6%) is refundable by the government 
and 25% of 8% (being 2%) is not on the first 
$400,000.00 of price.

Example: If the price from a builder is $500,000.00, 
the gross 8% PST component of the HST would be 
$40,000.00, but since the government offers a rebate 
of 75% of the 8% PST on the first $400,000.00, this 
will effectively (for a qualifying buyer whose immediate 
family member will be living in the unit) reduce the PST 
to 2% on the first $400,000.00 to $8,000.00. Since 
there is no PST rebate for that part of the price over 
$400,000.00, 8% is charged on the next $100,000.00 
being a further $8,000.00 which means (for a qualified 
buyer who can assign the rebate to the builder) that the 
total net PST payable is $16,000.00. If the net PST is 
not included in the price of $500,000.00, the price plus 
net PST payable becomes $516,000.00. The gross 8% 
PST on $500,000.00 is $40.000.00 but (due to the 
rebate of $24,000.00 on the first $400,000.00) the net 
PST payable is $16,000.00.

Note: If the builder’s agreement requires the Net PST to
be paid by the buyer, the buyer pays $16,000.00 on top 
of the price. If the builder’s agreement states that the Net
PST is included in the price (as GST is typically with most 
builders), the price remains $500,000.00. Watch out!

Caution: An investor-buyer who will rent out the unit will 
not qualify for assignment of PST rebate to the builder 
and, therefore, on closing, must pay the purchase price 
of $500,000.00 plus the gross PST of $40,000.00 
(being a total of $540,000.00) and then, after closing 
apply to the government for the rebate of $24,000.00 
to be received if the investor qualifies (must be owning 
for one year and rent to a tenant who is reasonably 
expected to live in the unit for one year, although the 
rebate application can be made as soon as the 
purchase from the builder is closed).

(f) Qualifying for a Rebate (GST or PST)
 buying from a Builder iIn order to qualify for GST or PST rebates, the property 
purchased from a builder must be intended to be a 
primary place of residence, which means that if a person 
has more than one residence in the world, (in order to 
qualify for the rebate) the unit must be the main place 
of residence and not a secondary residence.
Also, the residence purchased must be used as a primary 
place of residence (as stated above) by the buyer or a 
relation of the buyer. Relation of the buyer includes an 
individual who is related by blood, marriage, adoption or 
common law (including a former spouse or a former 
common law partner). Blood relation is limited to parents, 
siblings, children, grandchildren but does not include 
cousins, uncles or aunts.

(g) Additional Transitional PST rebate for 
Builder Purchase (where 
part of construction was done as of July 1, 2010)
If HST is payable on a newly constructed home (not a 
condominium) and if construction of the residence was 
at least 10% complete as of July 1, 2010, a transitional PST rebate of up to 2% of the sale price can be claimed
on the PST component of the HST as follows:

% Completed As Of      Portion Of 2% Of Price
         July 1, 2010               To Be Refunded
          10% - 24%                          25%
          25% - 49%                          50%
          50% - 74%                          75%
          75% - 89%                          90%
         90% - 100%                        100%

Example: If buying a freehold townhouse,5 a semi-detached 
or a detached from a builder for $500,000.00 where 
construction was 95% complete on July 1, 2010 and 
closing occurs on July 15, 2010, PST rebate for qualified 
buyer will be:

(i) 75% of 8% on the first $400,000.00 = $24,000.00
(ii) 100% of 2% on $500,000.00 = $10,000.00
Total rebates $34,000.00

Instead of paying a gross PST of 8% on $500,000.00 
being $40,000.00, the rebates of $34,000.00 would 
reduce the net PST payable to $6,000.00. The question 
is whether such Net PST is included or not included in the 
purchase price from the builder according to the terms 
of the builder’s agreement!

Note: The PST transitional rebate of up to 2% of the 
purchase price can only be obtained if:

(i) HST is payable on the price where the builder’s 
agreement was accepted after June 18, 2009 and 
closes after July 1, 2010;

(ii) the purchase is for new residential construction which
is not a condominium;

(iii) construction is at least 10% complete as of July 1, 2010;

(iv) a certificate is obtained on closing from the builder 
stating the percentage of completion of construction as 
of July 1, 2010. Note: the builder is not required to provide
this to a buyer unless the terms of the purchase agreement 
with the builder requires such a certificate to be provided; 


(v) an application for a transitional PST rebate is filed with
the government by July 1, 2014.


Ontario has proposed transitional rules that assist businesses 
in the transition to a Harmonized Sales Tax (HST).

more information on the transitional rules for the HST, please 
call Canada Revenue Agency (CRA):

For Personal property and services - 1 (800) 959-5525
For Real property - 1 (800) 959-8287

To speak with an information officer about the introduction 
of the HST in Ontario, please call 1 (800) 337-7222 or 
1 (800) 263-7776.

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