Harmonized sales tax is applicable on most real estate transactions. If you are constructing a new house after buying a lot of land, then the entire price of purchase including the land and the cost of developing the property will be subjected to harmonized sales tax or HST. Owners renting out such a property, whether a townhouse or condominium, will have to pay the whole 13% HST. Owners using the property as their primary residence may be eligible for a rebate. The rebate on HST depends on the sale price.
Homes under $400,000
Owners buying homes priced at $400,000 or less are eligible for rebate of 6% on the harmonized sales tax.
HST and the Resale home
Resale houses are except from the harmonized sales tax. If you are buying a residential property that is owned by someone else and they have lived in there, then you do not have to pay the tax. Used residential property is clearly defined by the Canada Customs and Revenue Agency. It can be a house, apartment, condominium, cottage, hobby farm or vacation property that has been previously occupied. A new built house can also be a used residential property if it has been sold once or more before you. A new property may be developed by someone and sold to another person who may sell it to you. There is no HST levied on such a sale so you do not pay the tax as it is a resale and you are not the one building the house.
Homes occupied by owners are exempt from HST. If you are buying a property that you intend to live in and it becomes your primary residence, then it is an owned occupied house and HST is not levied. Even if you are using one of the rooms as a home office, common for self employed professionals, the whole house is exempt from the tax. In case the home occupied by the owner is not the primary residence then the exemption is not applicable. If a part of this property is used as a house and a substantial portion is used for commercial or business purposes, then only the residential portion will be exempt from the tax. Residential properties that have retail stores upfront or at the ground floor do not qualify for a compete exemption.
The terms of sale of a residential property should be properly documented. Buyers should have the deed clearly state that a house is used and hence it is a resale. This is necessary to claim the HST rebate. HST exemptions are also available for sales of properties by nonprofit organizations, charities and many public service agencies.
HST and the Real Estate Transaction
HST is applicable to several services involved a real estate transaction. Realtors have to pay 13% HST on the commission. This has to be paid for by the seller. Even if the harmonized sales tax is subjected to a rebate and there is a reduction in the net tax to be paid by a seller, the tax on the commission paid to a realtor is still charged at the same standard rate of 13%. There is no rebate on the tax levied on the commission of realtors. Real estate transactions for used homes are exempt from the tax. Realtors selling such properties do not get any such exemption and hence the seller will have to pay the tax on the commission as per the standard rate.
HST is also applicable to fees charged for appraisals of properties, surveys, referrals and any legal assistance or service. Such taxes are also not influenced by whether or not a property is a resale and hence if there is any rebate or complete exemption. Any fees charged by a mortgage broker that is separate from the commission are not taxable as per HST rules. Interest on mortgage is also exempt from HST.
HST and Rent
Rental payments are exempt from HST. Fees charged by realtors or property managers to find tenants and to provide other services are not exempt from HST. Property management companies have a recurring charge that is paid for by landlords. Such payments are also subjected to HST. But the monthly maintenance fees of condominium associations are exempt.
When is HST Payable?
HST is to be paid during the completion of the transaction, usually on the closing date. HST is payable in some cases when there is effective transfer of possession. For both sellers and buyers, HST to be paid on the transaction, associates fees and the commission for the realtor are due on the closing date.