13 Jan What is the GST in Real Estate?
Why is GST on real estate in Canada so confusing? At Keylo, we like to simplify, so let’s start with the quick and dirty answers before we delve into the details: When does GST apply? Short answer: GST applies to new or substantially new homes.
Longer answer: GST in personal real estate intends that it only gets applied once. That’s why it applies to the first sale. The government makes it a bit confusing by saying it applies to “builders”. What they mean by that is it applies to point and time where substantial value has been created and sold for profit. It gets a bit more complicated for land/lots sold, and when a residence isn’t personally occupied (especially nightly rentals) or for tax purposes, it’s written off as a business. For anything complicated like that, you should speak with an accountant as a REALTOR® isn’t qualified to answer the details.
Laura Marcato CPA, at Seniuk and Company commented “Having a good Understanding of how GST is applied on the sale of a home can ensure that the home is only taxed once, instead of a potential double taxation situation”.
Ryan Mracek notes the exact moment clients get confused with GST. “When they see a contract is usually the first time they’ve even considered it.”. Getting hit with an extra 5% at the last second is terrible, so let’s break things down into two common scenarios.
You are buying a “used” home. This home has been previously owned/occupied. Your REALTOR® is using the standard AREA purchase contract, and in Section 2.2, it states, “The Purchase Price includes any applicable Goods and Service Tax (GST).” AREA already has you covered. They know this is confusing, so they put the contract onus on the seller (who is the party that knows if the home is new or not) that the offer includes GST if it’s applicable. So GST doesn’t matter to you as the buyer.
You are buying a newly built home from a developer. Buying a new home is a regular occurrence, but we’ll send a loud warning bell. Developers often have a team of lawyers craft their contracts instead of the standard AREA contracts. This process isn’t wrong. It just means they do things for their benefit, and GST could be one of them, so be clear on which party pays the GST. Now is an excellent spot to recommend a good REALTOR ®; since the seller pays the fee anyway, you should always get someone to represent your interest, not theirs. Keylo can help you personally in Edmonton or refer a great REALTOR® anywhere in Canada. Let’s add in scenario 2.5: In scenario two, it may say something like “NET GST” on the listing or in the REALTOR® notes. So what the heck does that mean? It means the price you see is what you pay.
For any scenario where GST applies, you (the buyer) can get a GST rebate for a portion of the GST back. In the case of the “NET GST” the builder is saying the purchase price includes the GST, but the builder gets the GST rebate too (so it’s Net GST).
Laura Marcato CPA, at Seniuk and Company commented “These situations can be complicated. Ensure you speak to your REALTOR® before finalizing the sale to ensure the GST is handled correctly “.
So now you know GST and real estate. Ask an accountant if you’re selling a home and are unsure. We talked about GST and real estate, but sellers know there is a commission to sell the home. Yes, GST applies to that commission and gets remitted to the government, so there is one more way they get you. Alberta doesn’t have PST/HST or a land transfer tax like other provinces but does have a land registration fee.