GST on Real Estate Purchase 2020
Rates, Rebates, Exemptions and More
Written By: Mariko Baerg, REALTOR of Bridgewell Real Estate Group
If you’re looking for a realtor to help you purchase a property, call me today!
Calculating closing costs, and specifically GST, is something that comes up quite frequently in the buying process.
It’s important that you understand what costs you’ll have to pay at completion so that you’re prepared and no surprises come up last minute.
This blog outlines when you need to pay GST on a real estate purchase, and whether or not any rebates or exemptions may apply to you.
I also goes in to the basic details of GST, such as the definition of GST and the tax rate.
Read for everything you need to know about GST on a real estate purchase in BC!
What is the GST on Real Estate in BC?
The British Columbia Goods and Services Tax for real estate in BC is a 5% Federal Tax that is payable at completion on the sale of brand new properties in BC.
This means that GST is payable only on newly constructed properties such as a pre-sale highrise condo sold by a developer, or an owner builder home. (usually detached)
This also means that assignment of contract purchased from another investor are subject to BC GST, in which case the new buyer (assignee) would be responsible for paying the GST at the time of completion.
What is the tax rate for GST?
When you’re paying GST on real estate in BC, for residential properties (excluding used), the tax rate is 5%, subject to any rebates.
In most situations where GST is applicable for a home purchase, you will need to factor in the purchase price PLUS 5% GST.
Do I have to pay GST? When does GST apply to a home purchase?
The following are the most common real estate situations that would be subject to GST:
- Presale Purchase (typically Condo or Townhome)
- New Construction Home
- Assignment of Contract of a New Home
- Substantially Renovated Residential Home
- New Mobile & Floating Homes
- Sale of Vacant Land
GST on New Homes in BC
Therefore, GST is payable on the purchase price of newly built homes that are most commonly newly built or in the presale phase and sold directly from the developer or builder. If you are a Buyer of a home that is considered a newly built home, then you are responsible for paying the GST on the property.
If you are purchasing a resale property or a home that has already been lived in, then GST should not apply. Generally, GST on real estate in BC is not subject to used homes, as the first owner of the property would have already paid it.
For our blog specific to new homes and GST and tax calculator, check out: GST on New Homes in BC Info
GST on Assignment of Contract in Presales
If you are purchasing an assignment of contract as an assignee (new buyer), GST is still applicable on the home purchase and you will be responsible for the payment.
GST on Substantially Renovated Homes
Substantially renovated is defined in the legislation as the removal or replacement of most of the house construction components, which typically means 90% of the building that existed before the renovations began must be renovated to a minimum degree. In addition to the 90% method, there are other common methods that include comparisons of the square footage of the floors, walls, and number of bedrooms between renovated and non-renovated.
GST on New Mobile Homes & Floating Homes
Yes, for a purchase of a newly constructed or substantially renovated mobile home or floating home, 5% G.S.T. will apply on the purchase price of the mobile home or floating home. The Purchaser will be able to claim the various rebates, as applicable.
GST on Sale of Vacant Land
The sale of vacant land is not always as black and white as you may think, so the short answer to this question is ‘maybe.’ Ultimately, it depends on the use of the property.
Examples of when GST would be applicable include:
- the sale of land that is capital property that had been used primarily in a business;
- the sale of land in the course of a business; and
- the sale of a parcel of land created by subdividing another parcel into more than two parts.
The sale of land by an individual that had been kept for personal use would be exempt from G.S.T.
Who pays GST in real estate?
Typically it is the Buyer of a real estate purchase that is responsible for paying the GST on a newly built home. The seller (or developer) does not typically pay GST on new homes.
However, the situation of assignment of contracts on new homes should be clarified, as there are two buyers: the original buyer (assignor) and the new buyer (assignee). Because the original buyer is assigning their rights to the contract to the new buyer, the new buyer (assignee) is the one that is responsible for paying GST on the purchase of the property. The assignor would not responsible for GST on the purchase, but would be responsible for paying any capital gains on the profit made from the sale.
In the rare cases, the seller may agree to pay the GST in which your real estate agent should insert the following clause in the contract:
Seller’s Agreement To Pay GST Clause: The Seller will pay any GST in connection with this transaction and the Buyer will assign any rebate entitlement to the Seller.
When is GST due and payable on a property?
GST is due at the time of completion, as per the contract of purchase and sale.
Your notary or lawyer will calculate this for you when they prepare the statement of adjustments in preparation for completion.
In a residential real estate purchase of a new home in BC (ie presale condo), the Buyer is the on who is responsible for paying GST at the time of completion.
Did your purchase price already include GST?
Did the purchase price include full sales taxes when you purchased it? If the answer is yes, then the GST has already been accounted for and you DO NOT need to pay it again.
Make sure that this is specified in your contract and that your lawyer or notary is aware.
NEW HOME GST REBATES
There are 2 types of GST Rebates for New Home Purchases. They are:
- GST New Housing Rebate (GST N.H Rebate)
- GST New Residential Rental Rebate (GST N.R.R Rebate)
GST New Housing Rebate
Full GST New Housing Rebate: The full GST new housing rebate is 36% of the 5% GST. For new homes in BC that are under $350,000 that a buyer intends on living in as their primary residence, the GST new housing rebate may apply.
Partial GST New Housing Rebate: Property purchases between $350,000 and $450,000 have partial rebates at a much lower amount. For homes valued between $350,000.00 and $450,000.00, the rebate is gradually reduced and is calculated by using the following formula:
$6,300 x [$450,000 – the purchase price] / $100,000
Homes over $450,000 receive no GST New Home Rebate at all and are subject to paying the full 5% GST on the new home purchase.
If you are claiming the rebate, keep in mind that you will be required to pay GST in full at the time of completion and cannot blend the GST amount in to your mortgage.
Full GST Rebate example:
Assume the purchase price of a new home is $350,000 excluding G.S.T.
Purchase price: $350,000
Full GST of 5%: $17,500
Purchase price with full GST = $367,500
GST New Home Rebate Calculation: 36% of $17,500(5% GST) = $6,300
GST After Rebate: $17,500 – $6,300 = $11,200
Purchase Price + GST – GST Rebate = $361,200
Partial GST Rebate example:
The Partial G.S.T. New Housing Rebate calculation is:
((Full GST Rebate of $6,300) x ($450,000 – qualifying purchase price)) / $100,000
Assume the purchase price of a new home is $400,000 excluding G.S.T.
Purchase price: $400,000
Full GST of 5%: $20,000
Purchase price with full GST = $420,000
GST Partial Rebate Calculation: ((Full GST Rebate of $6,300) x ($450,000 – $400,000)) / $100,000 = $3,150
GST After Rebate: $20,000 – $3,150 = $16,850
Purchase Price + GST – GST Rebate = $416,850
GST New Residential Rental Rebate
An additional rebate for new homes in BC is offered to purchasers that are planning to rent out the new home as an investment property. This rebate is called the GST New Residential Rental Rebate (GST NRR Rebate).
The calculation for both the full and partial exemptions are the same (36% of 5% GST), and similar to the GST New Housing Rebate, the full GST NRR Rebate is only available on new homes priced up to $350,000. A partial GST NRR Rebate is available for homes priced between $350,000 and $450,000.
To be eligible for the G.S.T. NRR Rebate, the Purchaser must meet the following conditions:
- The Purchaser must not be entitled to claim input tax credits in respect of any part of the tax payable on the acquisition of the rental unit.
- The rental unit must be a “qualifying residential unit” which means the person applying for the rebate must be the owner of the unit and the unit must be a self contained residence as defined in the Excise Tax Act;
- The unit must be held by the owner for the purpose of making exempt supplies (for example, a residential tenancy);
- The unit must be used as a primary place of residence by the tenants and must be so used for at least one year and the Purchaser will have to provide a copy of the tenancy agreement showing a term of at least one year.
Please note that the Developer is not allowed to credit the Purchaser on completion with the GST NRR Rebate.
This means the Purchaser will have to pay the full 5% G.S.T. on completion and then claim the G.S.T. NRR Rebate afterwards directly from Canada Revenue Agency.
If you’re thinking of buying a home and want to know the full cost of purchasing, then give us a call at 604-765-0376. Prefer text? 604-319-0200 or email [email protected] to start a conversation. We’re here to help.
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