Usually, the builder will do this by arranging financing for qualified new home buyers through a financial institution to which the builder has made a payment to reduce or buy down the interest rate (hereinafter referred to as a "mortgage buydown"). 31. Under the provisions of subsection 136(2), the supply of each part is a separate supply. The purpose or objective of the service may often be determined by examining a written contractual agreement for the supply between the supplier and the recipient of the service, in order to ascertain whether the supply is a zero-rated supply under the Act. The main characteristic of an immovable by nature is its incorporation or physical attachment to the land itself. Factors such as the payment of property taxes, control of entry and access (e.g., keys), the right to alter the land, the planting of crops or trees, collection of rents, repairs to the property, maintenance of the lot, insurance coverage, etc., by the recipient serve to indicate, although not necessarily conclusively, that possession has been transferred. Intangible personal property: -in Canada 142(1)(c)(ii) -outside Canada 142(2)(c)(ii). However, commercial rent will not apply if the landlord is a ‘small supplier’ and is not an HST registrant. Depending on the circumstances, sections 190 and 191 may apply to trigger the self-supply rules. Accommodation of one month or more is exempt only when provided in a residential complex, unless the consideration is for $20/day or less. The amount of capital gains you will pay on the sale of your rental property will largely be determined by the length of time you owned it and the specific tax bracket you find yourself in following the sale. One thing to keep in mind here is when the property is sold, or the use changes to longer-term rentals, there is a requirement to collect GST/HST on the sale or change in use. 1. If you wish to make a technical enquiry on the GST/HST by telephone, please call the toll-free number 1-800-959-8287. 112. You should assume that you need to check the rules carefully on all but the simplest of transactions. Such amounts are excluded from the application of the general timing rules. property otherwise than in the course of a business are not required to register for HST/GST (240(1)(b) ETA) • such vendors that are required to collect HST/GST on sales of real property (i.e., where the alleviating rule described below does not apply) account for the tax on form GST62 (238(2) Under subsection 168(5), the liability on a taxable sale of real property occurs on the earlier of the day ownership of the property is transferred and the day possession is transferred under an agreement to transfer ownership, notwithstanding that consideration for the sale may be paid or become due prior to that time. A deposit is not treated as consideration paid for a supply until the supplier applies the deposit as consideration for the supply. Adjusted Cost Basis. It is incumbent on sellers relying on the GST registration of someone other than the person who signed the APS to obtain adequate documentation to dislodge the presumption that the person signing the APS is recipient. Additional Information Publication 527, Residential Rental Property (Including Rental of Vacation Homes) Such a supply would not otherwise be zero-rated since that section applies only to supplies of tangible personal property. Alternatively, the construction contractor might invoice the recipient as follows: In this second example, the construction contractor invoices the same net amount to the recipient but is required to remit tax of only $6,300 with the return for that reporting period. If the contractor does not know all of the expenses with respect to the construction, then tax would be payable on that day on any ascertainable consideration (that is, known expenses plus 10%). Where personal use does not exceed 50%, and there is more than 10% commercial use as a percentage of total use, a partial ITC (under subsection 169(1)) is available based on the extent to which the property is acquired for use in commercial activities. Dear Frank, Thank you for your question. HST applies to commercial units, and not to residential units. (The individual registrant may be eligible to claim a GST new housing rebate). For complete discussion, see Section 19.2, Residential Real Property. in respect of property in the Province of Quebec, immovable property and every lease thereof, in respect of property in any other place in Canada, messuages, lands and tenements of every nature and description and every estate or interest in real property, whether legal or equitable, and. Copyright © Thang Tax Law Professional Corporation All rights reserved. Furthermore, where the mortgage buydown is provided by way of separate consideration, but not offered as a separate supply, e.g., the purchaser has no option but to take the financing terms offered by the builder, the mortgage buydown will normally be treated as part of the supply of the residential complex. Partial payments for a supply of real property by way of lease or rental are subject to a different time of liability rule. However, if the supplier collects an amount as tax or on account of tax before it becomes payable, the supplier must remit that tax with the supplier's return for the reporting period in which the tax was collected. HST AND REAL PROPERTY – OPERATION OF THE ETA 3 “taxable supply” means a supply that is made in the course of a commercial activity “supply” means, subject to sections 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, … This seems unreasonable given the registration was in effect and verified at the time of closing, which is when the seller’s obligation to collect tax is triggered. Rent for occupancy of the property before closing. 43. This new code replaced the Civil Code of Lower Canada (CCLC) effective January 1, 1994. Where the parties are claiming that a verbal agreement to transfer ownership has been made, the onus is on the parties to prove that such agreement has, in fact, been made. an order for specific performance of the verbal agreement from a court of law. The actual reference in the agreement to the supply as a lease or a licence may be helpful but not necessarily conclusive. Effective January 1, 1997, registrants who are required to self-assess tax on a taxable purchase of real property and who are using or supplying the property primarily in the course of commercial activities will report the tax on their regular return, that is, on form GST 34, Goods and Services Tax/Harmonized Sales Tax Return for Registrants for the reporting period in which the tax became payable. Certain services are considered to be zero-rated exports when provided to non-residents. For example, an individual and a builder enter into an agreement of purchase and sale for the supply of a newly constructed single unit residential complex on November 1, 1997. For example, where land is expropriated and the compensation is under dispute, if the expropriation is a taxable supply, the GST/HST would not be payable until such time as the dispute is adjudicated or the parties agree to the amount of compensation. If a purchaser of an eligible residential complex is to be paid or credited the new housing rebate by the builder, the value of the rebate must generally be included in determining the value of consideration of the complex. This case provides some valuable guidance to sellers of commercial real property. This applies regardless of whether the initial purchase was exempt of GST/HST. As a result, the rules for tangible personal property apply when determining if a supply of a mobile or floating home is made in or outside Canada, and in or outside a participating province. Rent-to-own agreements Policy statement P-164. If not, under the provisions of subsection 143(1), the services are deemed to be made outside Canada. Generally speaking residential rental property resale is not subject to HST. 101. Keep your neighbors in mind: Before buying an Airbnb property and making preparations to rent it out to different guests, get to know your neighbors. provided the method is applied consistently throughout the year. The following chart summarizes the availability of ITCs by percentage use in commercial activities: Governments, non-profit and charitable organizations, municipalities, universities, schools and hospitals (ss 123(1)). So you are just selling the contract which contains the right to close on the property. 58. In such cases, the request or application for payment by the contractor will not be considered to be an invoice. In this situation, because the memberships relate to real property situated in Canada, the supplies are deemed to be made in Canada under the provisions of subparagraph 142(1)(c)(ii). (For further information on eligible ITCs, see Chapter 8, Input Tax Credits: Eligible ITCs.). A registered supplier who is required to collect the GST/HST (or a registered supplier who is deemed to have collected GST/HST, in the case of self-supplied real property) must report the tax by filing the regular return, form GST 34, Goods and Services Tax/Harmonized Sales Tax Return for Registrants. Ownership of the house will be transferred to the purchaser on December 1, 1997. Due to the operation of subsection 141(4), no ITCs can be claimed if 90% or more of the intended use of a property or service in respect of that part of the operating cost is in relation to the making of exempt supplies. Thus, it is important to determine whether a service is "in respect of real property" situated in Canada. The capital cost of your rental property is recorded in your personal tax return on form T776 Statement of Real Estate Rentals. Corporation B has made a taxable supply of real property by way of lease for consideration which is equal to the fair market value of the land transferred by Charity A, i.e., $100,000. A government of a non-participating province sells a two-hectare parcel of recreational land. It turns out that the answer is not so simple and depends on the concepts of undisclosed versus disclosed agency under agency law. With respect, the court goes too far in appearing to suggest (para. However, a transfer of the legal ownership of an equitable interest in real property may be considered a sale of real property (see paragraph 22). The landlord is able to claim ITCs for the GST/HST paid or payable in respect of the portion of the electricity expenses attributable to the taxable rentals on the first floor, even though more than 90% of the building is used in exempt rentals. As long as there is no pause in the tenancy then the dwelling can be occupied as a principal residence or a vacation property. First, there was no evidence Company B assumed liability under the APS or became trustee of the property; the direction re: title was insufficient. the determination of the title to the real property. If the real property was acquired otherwise than primarily for the purpose of consumption, use, or supply in the course of the recipient's commercial activity, the real property return (GST 60) had to be filed, pursuant to subsection 228(4), by the end of the month following the month in which tax in respect of the supply became payable. There is, however, a new residential rental property rebate (NRRP), you may qualify for, which can offset the GST/HST paid during the … But it places the risk of not collecting GST/HST squarely on the seller. The term "similar arrangement" is not defined in the Act. In other words, HST will apply to all sales of real property unless the sale falls within an exception to the general rule. For example, a standard stipulated price contract requires the owner (i.e., the recipient of the supply of construction services) to make monthly payments based on the amounts approved by a third-party consultant. 113. VI, Part V, s 24, 49. Before you start calculating HST rebate on your new home, it is important to understand that the Provincial component of the HST rebate is fixed at 6% to a maximum of $24,000, the federal portion of the HST rebate is on a sliding scale, reducing to zero once the builder’s base price or “consideration” exceeds $450,000. (Note that a new housing rebate would not be available until December 1, the day ownership is transferred. The following guidelines will be applied by the Department to aid in the determination of whether the connection between the service and the real property is sufficiently direct for the service to be "in respect of" the property for purposes of paragraphs 7(d) and 23(b) of Part V of Schedule VI: 45. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors. Upon the application of the self-supply rule in section 191, however, the person incurs a GST/HST liability on a deemed supply by way of sale of the portion of the building that is a residential complex. 35. The portion of the sale price applicable to the balance of the premises (the commercial portion) is subject to GST/HST (sale of real property for use in commercial activities). Where the requirements of subsection 183(10) are met, if a creditor exercises a right under an agreement relating to a debt security or under a statute to satisfy in whole or in part a debt or obligation owing by a person to cause the supply of property of the person, the creditor is deemed to have seized the property immediately before that supply, and that supply is deemed to have been made by the creditor and not by the person. Therefore, the GST/HST becomes payable in respect of a given monthly payment under the contract when that amount is paid or five days after the certificate for payment is issued, whichever is earlier. (For further information on capital real property, see Section 19.4, Commercial Real Property.). The meaning of "sale" in respect of real property is important for various provisions including the application of the self-supply rules, the relieving of a supplier under subsection 221(2) of the obligation to collect tax, the requirement of a purchaser to self-assess under subsection 228(4), the availability of rebates, the application of the transitional rules, the timing of tax under subsection 168(5) and the exemptions listed in Part I of Schedule V. "any transfer of the ownership of the property and a transfer of the possession of the property under an agreement to transfer ownership of the property.". We will guide you through every step of the process – from initial application to the … Exclusion from the zero-rating schedule means these services in respect of real property are taxable at 7% or 15%, unless exempted under other provisions. Where the contract stipulates both the amount of a progress payment and the date the recipient is required to make that payment, the tax is payable on the amount called for in the contract at the date specified, even if no payment is made or an amount less than the full payment is made, since the amount called for in the contract has become due on that day. However, the farmer can continue to claim ITCs in respect of the operation of the farm. The portion of the price applicable to the residential complex must be separately determined since, by subsection 136(2), the residential portion of the building is treated as a separate property sold independently from the rest of the building (the commercial portion). 76. Supplies in Canada para 142(1)(d) ss 165(1), 32. As listed in section 2 of Part I of Schedule V, the supply of the used residential complex is exempt. Thus, commercial real property purchase agreements will commonly require the purchaser to certify that it is GST-registered and will self-assess as required, and include appropriate indemnities. Prior to January 1, 1997, if a person were to make a taxable purchase of real property in these circumstances, the recipient was required to file form GST 60, Goods and Services Tax Return for Acquisition of Real Property to report and pay the tax. 39. For example, a cottage property where you are renting it out under-30 day stays, through services such as Airbnb. 88. total revenues are below $30,000). As a result, in these cases, the recipient could have been required to remit the tax prior to the time the ITC claim could have been made. Filing this form enabled the recipient to claim an offsetting ITC at the time of tax payment, provided the property was acquired primarily for consumption, use or supply in the course of the recipient's commercial activities, and the GST 60 was filed with the recipient's regular return, GST 34, for the reporting period in which the tax became payable. 18. HST is always due to the CRA upon the closing of a sale of new construction properties purchased from a builder in Ontario (and some other provinces). A messuage is a dwelling house, with the adjacent buildings and the enclosed space of ground and building which immediately surrounds and is commonly used with the dwelling house. While the purchaser is not obligated to pay GST/HST at the time the deposit is paid or becomes payable, if the deposit includes an amount collected by the vendor as or on account of GST/HST, that tax is remittable by the vendor at that time pursuant to subsection 225(1). HST Rebate on New Homes Ontario Calculator. the purchaser is deemed to have sold the property to the debtor for nil consideration when the latter redeems the property, if the debtor reimburses the purchaser (or the creditor) the tax amount. New Residential Property. However, when you sell the property, HST does not apply as HST was already paid at the time the property was rented out as someone else’s residence. An interest in real property may arise, for example, by way of lease or security instrument (i.e., mortgage). Mortgage insurance premiums. In many cases, construction contracts provide for the contractor to submit requests or applications for payment on a regular basis during the term of the contract. If so, the entire supply is to be treated as a supply of that element. In … 83. This is meant to relieve purchasers of cash-flow issues in situations where they can claim full input tax credits (for example, commercial property purchased for rental). Holdbacks are governed by subsection 168(7) (and are discussed in paragraphs 81 to 84 in this section.). 68. Keep in mind, real estate depreciation begins when the property is placed in service, meaning when you rent it out, not when you purchase it. The change in the definition will have different effective dates in certain circumstances. At that time, the individual pays a $20,000 deposit in respect of the new house. 114. This election is discussed in detail in section 19.6. The remaining $700 of GST on the contract will be payable when the holdback is paid by the recipient or becomes due. How does “alternative minimum tax ” work. 118. 64. Notwithstanding that the condominium complex was not registered as a condominium at the time, the individual takes possession and moves into the unit specified in the agreement of purchase and sale on October 1, 1997. services in respect of real property situated in Canada, and. 7. These tips will help investors save on taxes and learn more about rental properties. 19. The latest day that GST/HST will be payable in respect of a given monthly payment under the contract will be 15 days after the application for payment is made by the contractor (i.e., 10 days for the certificate to be issued and five days for the payment to be made). • A supply of real property includes: a sale of real property where ownership and possession is transferred under an agreement, lease of real property, Rental property depreciation is calculated over 27.5 years for residential property and 39 years for commercial property. GST/HST liability is triggered by the terms of the contract in accordance with subsections 168(2) and 152(1). You are required to calculate your HST payable on the fair market value when the lease starts. GST/HST & Sales Tax Where a mortgage buydown is supplied together with a new residential complex by a builder for a single consideration, the mortgage buydown forms part of the supply of the residential complex by the builder. 50. You will indeed owe income tax on the rental portion of your house. 96. Frank. Unlike most other sales where vendors charge GST/HST, a special “self-assessment” rule in subsection 221(2) of the Excise Tax Act requires a GST-registered purchaser (the “recipient,” as defined) to self-assess applicable GST/HST on purchases of  real property (except where an individual purchases residential real property). Canada also includes the air space above its land territory, its internal waters, and the territorial sea. the service is physically performed on the real property (e.g., construction and maintenance); the direct object of the service is the real property in the sense that the service enhances the value of the real property, affects the nature of the real property, relates to preparing the real property for development or redevelopment, affects the management of the real property, or the environment within the limits of the real property, (e.g., engineering, architectural services, surveying and subdividing, management services, security services); the transfer or conveyance of the real property or the proposed transfer or conveyance of the real property (e.g., real estate services in relation to the actual or proposed acquisition, lease or rental of real property, legal services rendered to the owner or beneficiary or potential owner or beneficiary of real property as a result of a will or testament); related to a mortgage interest or security interest in the real property; or. A non-resident architect supplies design services in respect of real property located in Canada. Determining if and when possession is transferred in the case of real property is a question of fact, dependent on several indicators. Under section 199, no ITCs may be claimed on the GST/HST paid or payable for the acquisition, importation, or bringing into a participating province of capital personal property unless the property is acquired for use primarily, i.e., more than 50%, in commercial activities. In contrast, acquisitions, importations or bringing into a participating province of capital real property by persons other than individuals and public service bodies who have not filed an election under section 211, generate proportional ITCs expressed as a percentage of the extent to which the property is acquired, imported or brought into a participating province for use in commercial activities. For example, a registrant who is the landlord of a 20-storey apartment building pays electricity for the entire building, including the ground floor which is made up of retail shops. In contrast, a Canadian company hires a Canadian architectural firm to provide architectural services in respect of real property located outside Canada. The purchaser acquires possession of the house under the agreement of purchase and sale on November 15, 1997. The vacation club may from time to time become a member in other vacation clubs with destinations throughout the world. 37. Purchasers who rent out the property immediately after buying it are entitled to the Ontario New Residential Rental Property Rebate provided the first occupant is a tenant. If part of the real property is in Canada and part of it is outside Canada, then all of the supply is in Canada. 26. 33. It is provided for your reference. (For a discussion of place-of-supply issues that are particular to the provinces participating in the HST, see Section 19.1.1 Special Rules for Real Property under the HST.). However, if the payment is made before it becomes due under the terms of the contract, then tax will become payable on the day the payment is made. It is not uncommon for builders of newly constructed homes to offer mortgage financing at below-market interest rates. Many destinations are in Canada. 17. If a supplier were to make a taxable supply by way of sale of real property and incorrectly state or certify, in writing, that the supply is an exempt supply, the consideration for the supply is deemed to be GST or HST-included and the tax is calculated as 7/107 or 15/115 of the consideration as appropriate.