GST/HST and Real Property Sales

Posted By: Bobby B. Solhi on February 7, 2017 at 12:15:54 in All

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GST/HST and Real Property Sales

Under the Excise Tax Act, it is typically the vendor or seller of a good or service that is liable to the CRA for charging, collecting and remitting the GST/HST on the sale.  This is not the case when a vendor is selling real property to a purchaser that is a GST/HST registrant.  GST/HST and real property sales have special rules.

Real property sold to a GST/HST registrant is subject to the self-assessment mechanism under the ETA which, basically, means that the purchaser must charge itself the GST/HST on its purchase and remit the tax to the Receiver General.  It is often the case that the purchaser will have offsetting ITCs and remits nothing.

2252493 Ontario Limited v. The Queen is a recent decision from the Tax Court of Canada that highlights a serious risk to the seller of real property:  make sure the purchaser is a GST/HST registrant.  Otherwise, the vendor is liable for the GST/HST.

In this case, the HST liability to the seller was in the amount of $416,881.83.

This is an error that happens often: the signatory to the purchase agreement is one party but the person that closes on the deal is another party.  Unless, you can establish an agency relation between the two parties, it is the first party (the one that signed the agreement not the one that closed) that must be a GST/HST registrant.  By misidentifying the ” recipient” of the real property, the seller could be liable for the HST.

GST/HST and real property sales is an area of tax law that impacts many transactions.  In Ontario where the HST rate is 13%, coupled with soaring real property values, the HST exposure is significant.

*Bobby B. Solhi is a tax lawyer and partner at TaxChambers LLP, a leading tax law firm based in Toronto, Canada. 

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