When purchasing or selling a property, most real estate purchasers are aware that they must pay Property Transfer Tax – which is a tax levied by the provincial government for the transfer of land from one party to another.
But what some purchasers do not know is that they may also be required to pay Goods and Services Tax, also known as GST.
This article will provide an overview of some different scenarios in which GST may be payable in a real estate transaction.
Common Real Estate Scenarios Where GST is Applicable
In British Columbia, GST is charged on the sale of new homes that have not previously been lived in. This includes properties that are new developments. For example, purchasing a unit that has not yet been built (also known as a pre-sale).
Generally speaking, most property that has already been used for residential purposes will be exempt from GST. This is because the GST would have been paid when the property was new.
However, if a property used for residential purposes has been substantially renovated (i.e. 90% or more), GST may be payable.
How Much GST is Payable?
As at the date of writing this post – The current GST percentage rate is 5% of the sale price (which is assumed to be the fair market value of the property). For example, on a $500,000 newly-built home, $25,000 of GST would be payable.
Please note that GST is usually in addition to the purchase price.
Is GST Payable on the Sale of Vacant Land?
Whether GST is payable on the sale of vacant land will largely depend on who is selling the property and how that party made use of the land previously.
For example, in most cases, if the land is being sold by an individual or personal trust, andthe property was personal use land, then it is unlikely that the sale will be subject to GST.
However, if a corporation or partnership is selling vacant land, the sale will not be exempt from GST. In other words, GST will be payable. An exemption here is if a not-for-profit organization is selling the vacant land.
Other instances where GST may apply to the sale of vacant land include:
- where the land has primarily been used for business purposes;
- where land has been subdivided; and
- where the land is sold alongside a business.
At What Point in the Real Estate Transaction Process is GST Payable?
GST is generally payable upon completion of the purchase. At this time, your conveyancer will calculate the amount due and include it as part of the statement of adjustments.
If you qualify for a GST rebate (see discussion below), you can only claim the rebate after you pay the full GST amount.
Can You Apply for a GST Rebate?
Homebuyers in British Columbia may be eligible for a rebate on GST paid on the purchase of newly-built homes. The rebate is available for both new construction and pre-sale units, and can be applied for by the purchaser or the builder of the property.
To be eligible, the home must be used as a principal residence and have a sale price of $350,000 or less. For properties with a sale price between $350,000 and $450,000 a partial rebate may be available. The maximum amount of the rebate is 36% of the total GST paid.
For example, if you paid $16,000 GST on a property valued at $320,000, you may be eligible to claim a rebate of $5,760 (36% x $16,000).
Key Takeaways
Purchasing a property is obviously a substantial investment, and there many things to consider including whether GST is payable.
GST is generally payable at a rate of 5% of the sale price on newly built homes and pre-sales, as well as used residential properties that have been substantially renovated. GST is typically not payable on sales of used residential properties which have not been substantially renovated.
You may qualify for a partial rebate of the GST paid if the property is $450,000 or less.
If you are unsure of when and how GST applies, contact one of Solimano Law’s real estate lawyers today!
Disclaimer – The information contained herein is of a general nature. It is not intended to be legal advice and it is not intended to address the exact circumstances of any particular individual or entity. No one should rely on or act upon such information without receiving appropriate professional advice and without a thorough examination of their particular situation. Please contact our office if you have any questions with respect to the content of this entry, this website, or our Terms and Conditions .