Shauna O'Callaghan

HST

HARMONIZED SALES TAX

HST is a consumer tax. It is payable on most goods, including real estate. Purchasers will have to pay it unless the real estate is exempt or the purchaser’s use of the property will entitle them to defer it. Purchasers of commer- cially-used property should seek tax advice from a professional accountant.

Whether or not a property is exempt from HST depends on the vendor’s use of the property. If the vendor is using it for residential purposes, then it will be exempt. If it is vacant land held for the purpose of building a residential building for use by the vendor, and not as inventory, then it may also be exempt.

Property that the vendor is using commercially will attract HST. “Commercially” includes being rented or avail- able for rent for periods of less than 28 days, new construction, and lands or premises being held as inventory in a business of land speculating.

The important point to understand is that the HST status is determined by the vendor, so the purchaser should ob- tain a warranty concerning the HST status of a particular piece of real estate in the contract of purchase and sale.

If a property is subject to HST, the purchaser may defer the tax if they register for HST and continue a commercial use of the property. This is commonly done in respect of nightly rental properties. However, if such a property is taken out of the rental pool and kept for personal use, HST will be payable at that time on the market value at that time. More complex rules apply if Phase 1 property is rented nightly and is occasionally occupied by its owner.

Rebates are available to the first purchasers of newly constructed residences if they use it as their principal resi- dence. The rebate is 71.43% of the provincial portion of the tax to a maximum of $26,250.00. A rebate is also available for first purchasers that rent out the residence to a long-term renter, although this rebate must be applied for after completion.