When you buy a newly constructed home, condominium or town home, the entire purchase price including land is taxable. If the property is to be rented to tenants, the full 13% HST is charged on the purchase price. However, if the home is going to be your primary place of residence, it may qualify for a partial HST rebate, depending upon the sale price.
For homes costing $400,000 or less, you will qualify for a tax rebate of 6%.
You do not have to pay HST on the purchase price of a used residential home. In other words, the purchase is ‘exempt’ from HST.
The Canada Customs and Revenue Agency defines ‘used residential property’ to include a previously occupied house, condominium, apartment, summer cottage, vacation property or non-commercial hobby farm, that has been occupied as a residence before you bought it.
Used property can also mean a recently built house that is substantially complete and has been sold at least once before you buy it. For example, if a new house is purchased and resold before being occupied, the new home’s resale price will normally be exempt from HST.
An owner-occupied home is considered a residential property when it’s used primarily as your residence. So, if you are self-employed and purchase a resale home that includes a room used as an office, the entire home still qualifies for the HST exemption.
However, if your owner-occupied home is not used mainly for residential purposes (ie. A retail store with a small apartment upstairs), only the residential portion is exempt from HST on resale. The non-residential portion of the purchase price is taxable.
If you are planning to purchase a resale home, the seller can make a declaration on the deed stating that the property qualifies as ‘used’ for HST purposes.
As with most taxes, there are exceptions to the HST rules regarding resale housing. For instance, most sales of real property by charities, non-profit organizations and other public service agencies are except from HST.
Ontario HST on new, used and rental homes applies to most of the services provided in completing the real estate transaction. For example, 13% HST is applied to the commission a REALTOR charges for facilitating a sale. The tax is paid by the person responsible for paying the commission – usually the seller. REALTOR commissions are taxable even if the HST owed is reduced by a rebate, or the sale of the property is exempt from HST. For example, if you sell a used home, the sale price is exempt from HST but the REALTOR’s commission is still taxable.
HST applies to many other services involved in the real estate transaction, such as fees for appraisals, referrals, surveys and legal assistance. Again, HST is charged on these fees regardless of whether the house you purchase is exempt from the tax.
One exception is that mortgage broker fees are exempt from HST if the fees are charged separately from any taxable real estate commissions. Additionally, mortgages and interest on mortgages are HST exempt.
No HST is payable on residential rents. However, if you employ a REALTOR or another professional to find and arrange a tenant for your rental property, HST applies to the fees and commissions they charge for providing this service. HST also applies to the fees charged to the landlord for the property management, as well as repair and maintenance services. Monthly fees charged by condominium associations are not subject to HST.
HST is normally due and payable when the real estate transaction is completed. This is usually referred to as the closing date. In some cases, HST could be payable on transfer of possession.
For buyers, HST owed on the purchase price of non-exempt property, as well as fees and commissions for professional services is also paid at closing.
For sellers, HST owed on fees and commissions for professional services is also paid on closing.
Your REALTOR can answer your questions about the closing date and HST payments. For additional HST information, contact your local Canada Customs and Revenue Agency office.