As a general rule, real property transactions are taxable, even when the vendor is a small supplier and/or is not registered for GST/HST. In such cases, the vendor must collect and remit the tax (unless the purchaser is a GST/HST registrant—see discussion that follows). However, the sale of used residential property and certain sales of real property by an individual who is not engaged in a business are generally exempt from GST/ HST. In the case of bare land, if the property has been subdivided into more than two parts, even an unregistered individual must generally collect GST/HST when the property is sold.
There are special rules for family farm businesses, non-residents and individuals whose real property is held in the course of an “adventure in the nature of trade”. The latter offers optional treatment of the sale and an opportunity to recover tax embedded in the cost of property acquired after 1990.
Sales of real property to a registered purchaser
A vendor is generally not required to collect the tax where real property is sold to a GST/HST-registered purchaser. A business selling real property should ensure that the purchaser is registered before concluding that no tax will be collected on the sale. In this case, we recommend that the vendor should obtain a Certificate of GST/HST Registration from the purchaser, and verify its accuracy on CRA’s online GST/HST Registry. Incorrect treatment or lack of proper documentation in this scenario can be very costly to the vendor.
Where the purchaser is registered, the sale remains taxable; however, the purchaser is obligated to report the tax on a self-assessment basis. If the property is used primarily in making taxable supplies, an offsetting ITC can usually be claimed on the same GST/HST return that reports the liability. If the property will be used 90% or more in commercial activities, a full ITC is available (except for financial institutions), and no tax has to be remitted. However, if the property won’t be used primarily in making taxable supplies, the purchaser must remit the applicable GST/HST. Under these circumstances, a partial ITC may still be available. Consult your tax advisor for assistance with sales and purchases of real property.
Tax tip: When a non-registrant sells real property and the deal is subject to tax, the vendor can often recover GST/HST previously paid on the acquisition or improvement of the property that has not already been recovered. The eligible amount is claimed by filing a rebate form. If the vendor collects tax on the sale, the result is that the vendor sends the CRA the net amount of the tax collected minus the rebate amount. If the vendor doesn’t collect tax on the sale (because the purchaser is registered), the rebate will be paid to the vendor directly by the CRA. The rebate application must be filed within two years of the date of sale.
Sales of real property to a registered purchaser
A vendor is generally not required to collect the tax where real property is sold to a GST/HST-registered purchaser. A business selling real property should ensure that the purchaser is registered before concluding that no tax will be collected on the sale. In this case, we recommend that the vendor should obtain a Certificate of GST/HST Registration from the purchaser, and verify its accuracy on CRA’s online GST/HST Registry. Incorrect treatment or lack of proper documentation in this scenario can be very costly to the vendor.
Where the purchaser is registered, the sale remains taxable; however, the purchaser is obligated to report the tax on a self-assessment basis. If the property is used primarily in making taxable supplies, an offsetting ITC can usually be claimed on the same GST/HST return that reports the liability. If the property will be used 90% or more in commercial activities, a full ITC is available (except for financial institutions), and no tax has to be remitted. However, if the property won’t be used primarily in making taxable supplies, the purchaser must remit the applicable GST/HST. Under these circumstances, a partial ITC may still be available. Consult your tax advisor for assistance with sales and purchases of real property.
Tax tip: When a non-registrant sells real property and the deal is subject to tax, the vendor can often recover GST/HST previously paid on the acquisition or improvement of the property that has not already been recovered. The eligible amount is claimed by filing a rebate form. If the vendor collects tax on the sale, the result is that the vendor sends the CRA the net amount of the tax collected minus the rebate amount. If the vendor doesn’t collect tax on the sale (because the purchaser is registered), the rebate will be paid to the vendor directly by the CRA. The rebate application must be filed within two years of the date of sale.
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