How does GST work?

The goods and services tax (GST) is a tax that applies to most supplies of and services in Canada. These goods and services also include real property and intangible personal property. The GST is charged at 5% of the purchase price.

Who pays the GST?
Almost everyone has to pay the GST on purchases of taxable supplies of property and services (other than zero-rated supplies). However, certain persons may not always pay the GST on taxable supplies. These exceptions include First Nations and certain provincial and territorial governments.

The payment of GST can be deferred if the new purchaser is going to continue to offer the property for short term or nightly rental for 90% of the time and becomes a GST registrant. Becoming a GST registrant is a straightforward procedure of completing four forms. Once you are a GST registrant, you are entitled to claim credits for the GST that you pay, for example on legal fees, property management fees, and utilities such as electricity, gas, cable and telephone. You are then required to charge, collect and remit GST on the nightly rentals, which in some cases may be done through your property manager. You will be required to file an annual GST return as well.

GST on New Homes
When you buy a newly constructed home, condominium or townhouse, the entire purchase price including land is taxable supply. If the home is going to be your primary place of residence, it may qualify for a partial GST rebate, depending upon the sale price. If the property is to be rented to tenants, the full 5% GST is charged on the purchase price. For more information on potential GST Rebates please follow this link.

GST on Resale Homes
A limited number of goods and services are exempt from GST. This means the GST is not charged. Some common examples of exempt supplies of property and services are: used residential housing; long-term residential accommodation (of one month or more), and residential condominium fees. This means that if a home is considered "used residential housing" then the transaction is exempt from GST. 
Used property can also mean a recently built house that is substantially complete and has been sold at least once before you buy it.

GST on Nightly Rental Properties
Properties that are used for nightly rental revenue purposes are classified as commercial assets and therefore do not qualify as "used residential housing" and thus do not qualify qualify for a GST exemption. Sellers of these properties must charge GST on their sale. There are accounting processes that allow for an investor to claim a capital acquisition input tax credit on the purchase of a nightly rental revenue property by becoming a GST registrant and using that tax credit to satisfy the requirement to pay GST. You may hear this referred to as "deferring the GST" though there is no actual deferment taking place. In this situation, and any other regarding GST liability, the advice of a professional accountant is highly recommended.
Used property can also mean a recently built house that is substantially complete and has been sold at least once before you buy it.

GST and Real Estate Deals
GST applies to most of the services provided in completing a real estate transaction. For example, 5% GST is applied to the real estate commission. The person responsible for paying the commission - usually the vendor, pays the tax. GST applies to many other services involved in real estate transactions such as inspections and lawyers fees.

Disclaimer

Please remember that the rules regarding G.S.T. frequently change. While we try to keep our website up to date as much as possible, please do not rely upon the information without talking either to one of our lawyers or your financial advisor.