Though many people do not realize it, unless an exemption applies, real estate purchases are subject to GST. To determine whether an exemption applies, the seller must consider how the property was used during its ownership.
Buyers are often unable to know whether GST will apply to their purchase when they enter into a contract, causing a sense of uncertainty and a lack of clarity. This is further complicated by the fact that under Canada’s Excise Tax Act, it is the seller’s responsibility to collect and remit the GST.
To date, the question of whether GST is payable and who is responsible for paying it is often dealt with through the addition of specific provisions to a contract.
In an effort to simplify matters, the British Columbia Real Estate Association and the Canadian Bar Association (BC Branch) have recently introduced changes to their standard real estate contracts that add specific provisions regarding GST.
The new provisions state that unless otherwise agreed in writing the purchase price for a property includes GST and therefore, in the event that GST does apply to the transaction, the buyer would be responsible to pay the purchase price (which would include GST) to the seller, and the seller would, in turn, be responsible to deduct the GST from the negotiated purchase price and remit it to the Canada Revenue Agency.
In many contracts, this does not change the negotiated agreement, but for agreements where the parties or their realtors do not consider the potential application of GST, it will add some welcome clarity.
Our only word of caution at this point is that if the intention is that GST should be paid by the buyer to the seller over and above the purchase price, it will need to be explicitly set out in the contract.
If you have any questions about GST and an upcoming real estate transaction, or any general real estate or business law inquiries, please reach out to Paul Tonita at [email protected] or give him a call at 250-869-1226.
