HST, it’s complicated

Harmonized sales tax (HST) is a value added tax. Believe it or not, it’s a profit center for most businesses (because you are allowed to set off against HST amounts owing to government any ITCs (input tax credits) you may have).

From a consumer’s POV, however, it’s just another tax (in most cases).

When we purchased an NHL expansion franchise (the Ottawa Senators) from the League in 1991, I argued and lost the discussion with CRA (Canada Revenue Agency) that, because the transaction was happening in New York (on Park avenue where NHL head office was and still is), the franchise fee of $50 million USD should not be HST’able.

Still, CRA sent us a bill for what was then GST (Goods and Services Tax) in the amount of 7% of $50,000,000 or $3.5 million USD of GST owing.

Today, HST is 13% (5% federal and 8% provincial) so the tax bill would be even higher.

Not persuaded, I further argued that it made no sense to levy HST on a commercial transaction like this, only to have the Sens turn around three months later and use it as an ITC (in other words, CRA would just have to write us a check/cheque in that amount once we filed our HST/GST).

Finally, CRA agreed. In fact, the escrow account had two checks in it–one from the Sens to CRA for $3.5 million USD, and one from CRA to the Sens in the identical amount. Basically, we crossed checks.

Kind of stupid.

This led to CRA improving the process–now, as long as you (the buyer) are pre-registered for GST or HST (ie, in advance of the transaction completing), you can simply self-declare (by filling out a form your attorney will prepare as part of the closing documents) and no money changes hands.

If you are buying commercial property, buildings, businesses, this applies.

But what happens when you buy a lot to build a home on?

It’s complicated.

Here’s what I wrote a client of mine who is buying an expensive lot where they will build an even more expensive home on a rural lot that is nearly 4-acres:

Bill (not his real name):

We put in (as a condition) lawyer review (Shelley Smith, not her real name) so if there are any flaws, we can pick them up after you have tied up the lot. (That’s so you don’t spend any $$$ on legal fees until you know you have a deal).

Also, I added “HST rebate (if any) shall belong to buyer.”

This is a complicated subject you should talk to Shelley about.

As I understand it, you pay HST on new lots created thru a subdivision process but not on “lots of record” (lots, basically, that have been around forever).

If a lot is severed off an existing parcel (ie, not thru a subdivision process), it may or may not be subject to HST. If there has been a severance before, it is subject to HST, but if it’s the first severance, it isn’t, I think.

Like I said, it’s complicated.

Since your new home is likely to be >> $500,000, the max rebate you are probably eligible for is $24,000. See table below. But, again, please talk to Shelley since she’s the real expert in this…

Best, Bruce

Bruce M Firestone, B Eng (civil), M Eng-Sci, PhD
Real Estate Investment and Business coach
ROYAL LePAGE Performance Realty broker
Ottawa Senators founder
1-613-762-8884
bruce.firestone@century21.ca
twitter.com/ProfBruce
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-MAKING IMPOSSIBLE POSSIBLE
-FREEDOM VIA REAL ESTATE INVESTMENT AND PB4L, PERSONAL BUSINESS FOR LIFE
-FEHAJ, FOR EVERY HOME A JOB
-MAKE YOUR HOME WORK FOR YOU, INSTEAD OF YOU WORKING FOR IT
-HIGHER ROI NOT JUST FOR OWNERS AND INVESTORS, BUT FOR TENANTS, GUESTS, VISITORS, NEIGHBORHOODS, COMMUNITIES, TOWNS, VILLAGES, AND CITIES TOO

Note: please contact your lawyer, accountant and tax expert for advice in these matters. I am simply reporting my experience, not providing any definitive advice, ok?

Postscript: image source, By Kooma (original) – Government of Ontario, About Ontario: Emblems and Symbols (bad link), Public Domain, https://commons.wikimedia.org/w/index.php?curid=435590