Get 3 Different Answers
Also, How One Particular Answer Saved the Ottawa Senators in 1991
I recently wrote to a client about whether HST would or would not apply to a purchase of land/lot in Ontario he is contemplating, and asked our broker-of-record where I work to check my answer. Here’s what I wrote–
I think your lawyer is right; HST will probably not apply to this land/lot sale. But I
have to tell you that, in my experience, if you call CRA (Canada Revenue Agency) three times and speak to three different agents, you will
get three different answers about land/lot sales.
HST is usually applied to sales of newly created lots in new subdivisions, but should not be applied to sales of pre-existing lands. At least, that’s my basic understanding. Having said this, there is sometimes an argument about what constitutes “new” or “pre-existing”. If the agreement of purchase and sale says “HST is included in the price” and CRA disagrees, the seller can be held liable to pay it, which amounts to 13% of the purchase price, a huge sum.
what’s best and what’ll protect your interests as well as the seller’s is to
say that HST, if it applies, is in addition to the purchase price. Since you or
your company will be registered for HST before closing, you can self declare and
then no one pays HST, not you or the seller. Note, the seller also has to be registered with CRA for HST in order for a joint election like this to work, so that also has to be mentioned in any agreement of purchase and sale.
Since you or your company are or will be registered with CRA for HST, the HST you pay on acquisition of land/lot or commercial property becomes an ITC, input tax credit, and you get it back. CRA does not want to collect the tax since they will only have to turn around and give it back when you file your next HST return. That’s why they allow self declaration; otherwise, it’s a huge hassle for the department for zero net gain.
I should tell you that the precedent for this was set by us years ago when we were buying the Ottawa Senators franchise from the NHL in 1991. CRA informed us a short time before completion that GST (the predecessor of HST) would apply to the $50 million franchise purchase even though the transaction would actually take place in New York City where the NHL is based not Ottawa. This created a $3.5 million cashflow problem for the team (7%, the GST rate at the time, times $50 million).
Bernie Ashe, CFO for the Sens in those days (now president of OSEG, the Ottawa Sports and Entertainment Group, which runs the RedBlacks, the 67s, the Ottawa Fury, TD Place and Lansdowne Park) argued that it was a (cashflow) nightmare not only for the team but also an (administrative) nightmare for CRA to levy the tax and then have to return it when the Sens did their next quarterly GST filing.
The issue went to the Minister of National Revenue who thankfully agreed with us, saving the team (yet again) from oblivion, and resolving the matter for hundreds of thousands of other Canadian citizens and companies.
is what we are doing these days to protect both buyers/sellers. Can you please run this past your lawyer? If
your lawyer is unclear, can I speak to him?
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