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recent article on mortgages and mortgage-related matters. Whether you're buying or selling a home, the Goods and Services Tax, or GST, will probably apply to the transaction. However, with GST rebates and exemptions, figuring out its impact can be confusing. Real estate professionals know how it works and can help you understand what it means to your transaction. The Goods and Services Tax replaced the Federal Sales Tax in 1991. Although the tax is collected at a rate of 7% on the sale price of goods and services, it doesn't apply to every type of home or real estate service. New home purchases are subject to GST but may qualify for a rebate. Resale homes are sold without GST. Land may be exempt from tax but realtors and other professionals must charge GST on the services they provide. If this sounds confusing, let's hope that the outline below, prepared in part by the Ontario Real Estate Association, helps answer your questions. GST On New Homes When you buy a newly constructed home, condo or townhome, the entire purchase price, including land, is taxable. If the property is to be rented to tenants, the full 7% GST is charged on the purchase price. However, if the home is going to be your primary place of residence, it may qualify for a partial GST rebate, depending upon the sale price. For homes costing $350,000 or less, you will receive a rebate of 36% of the GST paid, to a maximum of $8,750. That means you pay approximately 4.5% GST (not 7%) on the purchase price. New homes selling for $450,000 or more do not qualify for a GST rebate. If you purchase a substantially renovated home from a builder who supplies both the land and the house as a single transaction, the same GST rebate conditions apply. Ask your realtor to explain how the government defines "substantially renovated". GST and Land Buyers who purchase land separately may have to pay GST on the sale price depending on the previous use of the land. When you build a new home on your land, then you will pay GST on the construction costs of the house, less any applicable rebate. If you paid GST on the land, the rebate would be the same as for a new home which means that when the total value of the land and home is $350,000 or less, the rebate would be 36% of the GST paid on the building to a maximum of $8,750. If GST was not paid on the land, and the value of the land and home is $350,000 or less, the rebate would be 10% of the GST paid on the building to a maximum of $1,720. GST and Resales You don't have to pay GST on the purchase price of a used residential home. Revenue Canada defines "used residential property" to include an owner-occupied house, condo, apartment, summer cottage, vacation property or non-commercial hobby farm. It refers to "used" as residential property that has been occupied as a residence before you bought it. An owner-occupied home is considered a residential property when it's used as your primary residence. So, if you are self-employed and purchase a resale home that includes a room used as an office, the entire home still qualifies for the GST exemption. If, however, your owner-occupied home is not used mainly for residential purposes (for example, a retail store with a small apartment upstairs), only the residential portion is exempt from GST on resale. The non-residential portion of the purchase price is taxable. GST and Real Estate Transactions GST applies to most of the services provided in completing your real estate transaction. For example, 7% GST is applied to the commission a realtor charges for facilitating a sale. The tax is paid by the person responsible for paying the commission - usually the seller. Realtor commissions are taxable even if the total GST owed is reduced by a rebate, or the sale of the property is exempt from GST. If you sell a used home, the sale price is exempt from GST but the realtor's commission is still taxable. GST applies to many other services involved in the real estate transaction. These include fees for appraisals, referrals, surveys and legal assistance. Again, GST is charged on these fees regardless of whether the house you purchase is exempt from the tax. One exception is that mortgage broker fees are charged separately from any taxable real estate commissions. Additionally, mortgages and interest on mortgages are GST exempt. When is GST Payable? GST is normally due and payable when the real estate transaction is completed i.e. on the closing date. More Questions? The Ontario Real Estate Association puts out an excellent series of free booklets on everything from Buying a Home, Selling a Home, and Working with a Realtor to Affording a Home, RRSP Homebuyers' Plan and GST and Real Estate. Revenue Canada also produces a free booklet called GST Information for Home Buyers and it's available from your local Revenue Canada office. Article:
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