When is HST (Harmonized Sales Tax) applicable?
“We’re looking at buying a triplex and living there with my twin sister and renting the third unit out. We heard that you have to pay HST on the property. Is that true?”
Harmonized Sales Tax (HST) is a value-added tax applied to most goods and services in certain Canadian provinces, including Ontario, where it is currently set at 13%. When it comes to real estate transactions, such as purchasing a triplex and renting out one of the units, HST can have implications depending on various factors, including the nature of the transaction and the intended use of the property.
When purchasing a triplex — the application of HST depends on whether the buyer intends to use one of the units for personal use or rent out all three units.
1. Personal Use:
If the buyer intends to occupy one of the units as their primary residence, the purchase of the triplex is generally exempt from HST. This exemption applies to residential properties intended for personal use and does not trigger HST obligations.
2. Rental Property:
If the buyer intends to rent out all three units, the transaction may be subject to HST, particularly if the seller is a GST/HST registrant. In such cases, HST would typically apply to the sale price of the property. However, there are exemptions and rebates available that may mitigate the HST payable.
There will be HST on it as it’s a business property; the same applies to newly constructed homes and undeveloped land.
The problem with it, though, is that many new builders already include it in the price. For example, if you see a price of $859,000, it’s likely already included in the price. Additionally, commercial properties such as triplexes or stores with flats above are also included in the price. In essence, they can handle everything accounting-wise. You can sign a document stating that you failed to pay HST, and the other person can sign a document stating that they did not send it.
There are methods to get around it; just check with your lawyer. I’ve done that quite a few times, as have our clients. Just make sure, as vacant land, newly constructed homes, and commercial property are often the three items that qualify for HST once again. However, there are workarounds, and the majority of new construction include it in the price.
Understanding HST exemptions, rebates, and obligations is crucial for real estate investors, and consulting tax professionals or legal advisors ensures compliance and maximizes benefits.