April 17th, 2024
Building Owner
Generally, the sale of a previously occupied residential property is exempt from GST and QST. However, there are situations in which such sales are taxable:
Where the vendor has claimed input tax credits and rebates (ITC/ITR) in respect of the acquisition of the immovable or improvements thereto, and the sale is not made following a change of use;
Where the residential property was used as temporary accommodation (taxable short-term rental);
If the residential property is no longer habitable at the time of sale, the sale will generally be considered taxable by the tax authorities;
If the land of the residential complex is more than half a hectare in size, the portion that exceeds this area of land is generally not considered part of the residential complex, unless it can be shown that such land is reasonably necessary for the use of the complex as a place of residence for individuals.
The excess value of the land sold with the residence may be taxable under the GST/QST, particularly if the seller is not an individual or a personal trust;
If part of the land or dwelling is used for commercial activities, this part is not deemed necessary for the use of the building as a place of residence and may be GST/QST taxable.
For example, a garage attached to the home that is used to provide vehicle repair services.
Recommendations
The Offer to Purchase and Agreement of Purchase and Sale for a previously occupied residential complex should include provisions to confirm that most of the exceptions noted above are not applicable to the sale, where the vendor’s declaration states that the sale of the residential complex is exempt from GST/QST. This protects the buyer from a possible GST/QST claim by the seller, following an audit by the tax authorities, if it turns out that the seller’s declaration that the sale is GST/QST exempt is erroneous.
Under Sections 194 ETA and 235 ARQST, if the seller declares in writing that the sale is exempt as a used residential building, the seller is responsible to pay the taxes on the sale of the real property, unless the buyer knows or ought to know that the supply is not an exempt supply.
