GST Tax: What Home Buyers Need to Know

FAQ: 5% GST and the Sale of New Homes

GST. It’s a very convoluted topic in Real Estate with a variety of different situations, and potential negotiation to take place in determining how much is payable and by whom. GST is a consideration for any brand new or pre-sale unit: from a unit in a condo high rise, to a brand new townhome to a new single family house. Ultimately, if a home is subject to the 5% GST Tax, someone has to pay it – it’s just a question of who? Either the Buyer or the Seller, and this decision is discussed and agreed upon during the initial offer negotiation.

This post is not intended to be an answer to your situation or to act as professional advice. If you’re involved in a transaction where GST might be payable, I highly suggest you contact a professional tax advisor and the GST office for proper, written advice on your particular situation. There are so many different factors that some into play with regards to tax on new homes that it’s impossible to discuss them all here. We ensure all of our clients get proper advice through the right channels when it comes to these situations, and ensure everything is clarified on the contract.

Who Pays GST Tax on New Homes in Vancouver?

Simply put, if you’re buying a newly built home, that has never been lived in, from a Developer, you should assume that you need to pay the 5% GST Tax in addition to the sale price. This applies to brand new condos, townhomes, half duplexes and single family houses bought during pre-sale or even after construction finishes – as long as the Seller is the Developer of the home. If you see a new condo listed for $299,900 offered in a condo pre-sale, assuming that you’ll be paying:

$299,900 + 5 % GST = $299,900 + $14,995 = $314,895, plus typical closing costs

Having said this, a contract can be negotiated so that the Seller is responsible for any and all GST Tax. This is often a good idea because it makes the closing process easier for the Buyer. However, you can expect that if the Seller is responsible for the GST, that they will negotiate a slightly higher sale price to account for some of the extra cost. What needs to happen before this is agreed upon is if the GST is definitely applicable, and for how much. You don’t want to agree to pay more in Sale Price so that the Seller pays the GST Tax, only to find out this property had a loophole where there is no GST payable.

One of the other issues with GST is the GST Rebate offered by the Government. It needs to be determined if this rebate is applicable to the property (the property has to be under a certain price, along with other conditions), who can file for this rebate and who the rebate should be assigned too. A simple way to cover this point, which makes things easy for the Buyer, would be to say that the purchase price includes GST, and the Developer is entitled to the GST rebate. However, If it is a rental property you probably have to pay the GST up front and then apply for the rebate yourself.

Are there situations when GST Tax is not applicable?

Yes, there are situations were GST is not applicable even for new developments. Even if the development is new, if someone is living in the property, technically the GST should not be payable (as it’s not a brand new property). In this situation, the Sellers would have already paid the GST. However, there may be people living in the property as “Caretakers”, which is a grey area when it comes to the property being “lived in” or not.

Final Thoughts

There is so much more to say on this topic, but there is not much of a point until the situation arises. As your Real Estate representative, it is my job to ensure that whoever pays the GST is abundantly clear on the contract, and that your rights and terms are protected.

 

Feel free to give us a call if you have any questions, we can help!