GST Tax on Home Purchases
The goods and Services Tax replaced Federal Sales Tax in 1991. Although the tax is collected at a rate of 7% on the sale price of goods and services, it doesn't apply to every type of home or every form of real estate service.
New home purchases are subject to GST but may qualify for a GST rebate. Resale homes are sold exempt from GST.
GST and New Homes
When you buy a newly constructed home, condominium or townhouse, the entire purchase price including land is taxable. If the property is to be rented to tenants, the full 7% GST is charged on the purchase price. However, if the home is gong to be your primary place of residence, it may qualify for a partial GST rebate, depending upon the sale price.
For primary residences costing $350,000 or less, you will receive a rebate of 36% of the GST paid, to a maximum of $8,750. That means you pay approximately 4.5% GST (not 7%) on the purchase price.
and the Resale Home
Revenue Canada defines "used residential property" to include an owner-occupied house, condominium, apartment, summer cottage, vacation property or non-commercial hobby farm. They refer to "used" as residential property that has been occupied as a residence before you bought it.
Used property can also mean a recently built house that is substantially complete and has been sold at least once before you buy it. For example, if a new house is purchased and resold before being occupied, the home's resale price will normally be exempt from GST.
Realtor commissions are taxable even if the total GST owed is reduced by a rebate, or the sale of the property is exempt from GST. For example, if you sell a used home, the sale price is exempt from GST but the Realtor's commission is still taxable.
GST applies to many other services involved in the real estate transaction. These include legal fees, appraisals, surveys and legal assistance. Again, GST is charged on these fees regardless of whether the house you purchase is exempt from the tax.
Along with the GST there are also other taxes that a purchaser must pay. Included is the Ontario Land Transfer Tax and the BC Property Transfer Tax. These are Provincial taxes levied on the purchase of property.
BC Property Transfer Tax
(a) Must be the purchase of a principal residence;
(b) The purchaser must be a Canadian citizen or permanent resident of Canada;
(c) The purchaser must have resided in the province of British Columbia for at least one year immediately prior to the application to register the purchase of the principal residence;
(d) The purchaser must not have previously owned an interest in a principal residence anywhere in the world;
(e) The fair market value of the land and improvements must not exceed $275,000 within the Capital Regional District, Greater Vancouver, Central Fraser Valley, Dewdney-Allouette and Fraser Cheam and $225,000 if the property is located elsewhere in the province;
(f) The amount borrowed to finance the purchase, and registered against title, must be 70% or greater of the fair market value; and
(g) The amount borrowed must have a term of at least one year.
These are major requirements which should be reviewed with your realtor, lender or lawyer to ensure that you qualify.
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