GST on Real Property Transactions

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(Monday, December 28, 2009)

Summary

The GST rules for sales of land and buildings are complex, with some sales taxable for GST and some exempt. There are also special reporting requirements, where the purchaser sometimes has to report the GST collected on the sale.

Article

All sales of land are taxable for GST at 5%, except for exempt sales, which are found in Schedule V of the Excise Tax Act. Similarly, sales of buildings are taxable unless they are specifically exempted.

Exempt sales.

· Sale of a residential complex by other than the builder. Sales by the builder are taxable. This generally means that newly build or renovated housing is taxed once on the first sale, and not taxed thereafter. Where the vendor has claimed an Input Tax Credit on the complex, or it has been used in commercial activities and Input Tax Credits claimed, the sale is generally taxable.

· Supply of a residential trailer park – provided the supplier has not claimed an Input Tax Credit on the acquisition of the property.

· Sale of personal use property by individuals and trusts – EXCEPT

o Land used primarily (50% or more) in a business with a reasonable expectation of profit.

o Land supplied in the course of a business.

o Land supplied in the course of an adventure in the nature of trade with an election to treat it as taxable.

o Land that has been subdivided or severed into more than 2 parts.

o Land deemed to be sold under change of use provisions.

o Land sold back to the vendor.

· Farm land sold by a farmer to children and grandchildren for personal use and enjoyment. Property must have been used by farmer in the business of farming, not used in any other commercial use immediately prior to the sale, and must be purchased for personal use and enjoyment by purchaser or a relative.

· Sale of a parking space for a residential complex. Parking space must be in the condominium complex, must be part of the sale of the residential complex or at the same time, and the supplier must not claim an input tax credit with respect to the parking space. This only applies when the parking space is specifically identified as a separate supply. If it is not broken out on the sale, it is treated that same as any other supply of a residential housing unit – taxable on the first sale by the builder, and exempt thereafter.

When land and buildings are sold to someone registered for GST, the vendor does not collect the GST unless the sale is the sale of a newly constructed or renovated residential complex. Instead, to help with the purchaser’s cash flow, the purchaser reports the acquisition of land and building on their GST return, and claims an input tax credit on the same return. As a consequence, the purchaser does not need to come up with the cash for the GST on the purchase, and then wait to get a refund on their GST return. If neither the purchaser or vendor is registered for GST, but GST applies to the sale, a special form called a GST 60 is filed by the purchaser, who remits the GST to CRA.

If you are buying or selling real estate, make sure you know the GST reporting requirements by talking to your accountant before the sale closes.