GST Calculations

When you buy a newly constructed home, condominium or townhome, 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 going to be your primary place of residence, it may qualify for a partial GST rebate, depending upon the sale price.

For homes 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.

Example #1

You buy a new home for $150,000. The 7% GST is $10,500, less a 36% rebate of $3,780. So, you pay $6,720 is GST.

1) $150,000 x 7% = $10,500
2) $10,500 x 36% = $3,780
3) $10,500 - $3,780 = $6,720

The maximum rebate is $8,750. The rebate for new homes costing between $350,000 and $450,000 declines to zero on a proportional basis, using this formula:

Rebate = $8,750 x ($450,000 - Selling Price) / $100,000

Example #2

You buy a new home for $400,000. Your GST rebate is $4,375, and the total GST owed is $23,635.

1) $400,000 x 7% = $28,000 (GST)
2) $8,750 x ($450,000 - 400,000) / $100,000 = $4,375 (GST rebate)
3) $28,000 - $4,375 = $23,635 (total GST owed)

New homes selling for $450,000 or more do not qualify for a GST rebate.

If you buy a substantially renovated home from a builder who supplies both the land and the house as a single transaction, the same GST rebate conditions described above apply. Your REALTOR can explain how the Federal Government defines "substantially renovated."

GST and Land

Buyers who purchase land separately may have to pay GST on the sale price depending on the previous use of the land. When you build a new home on your land, then you will pay GST on the construction costs of the house, less nay applicable rebate.

The rebate would be the same as for a new home. That is, when the total value of the land and home is $350,000 or less, the rebate would be 35% of the GST paid on the building and the land to a maximum of $8,750.

When the total value of the land and house exceeds $350,000 but is less than $450,000, a proportional formula for calculating the GST rebate applies.

As with other new home purchases, GST rebates are not available for land and buildings valued at $450,000 or more when you build a house on your lot.

GST and the Resale Home

You don't have to pay GST on the purchase price of a used residential home. In other words, the purchase is "exempt" form GST.

Revenue Canada defines "used residential property" to include a previously 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 hat 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.

An owner-occupied home is considered a residential property when it's used primarily as your residence. So, if you are self-employed and purchase a resale home that includes a room used as an office, the entire home still qualifies for the GST exception.

However, if your owner-occupied home is not used mainly for residential purposes (for example, a retail store with a small apartment upstairs), only the residential portion is exempt from GST on resale. The non-residential portion of the purchase price is taxable.

If you are planning to purchase a resale home, the seller can supply you with a certificate stating the property qualifies as "used" for GST purposes.

As with most taxes, there are exceptions to the GST rules regarding resale housing. For instance, most sales of real property by charities, non-profit organizations and other public service agencies are exempt form GST. Contact your REALTOR for additional information.

GST and the Real Estate Transaction

GST applies to most of the services provided in completing the real estate transaction. For example, 7% GST is applied to the commission a REALTOR charges for facilitating a sale. The tax is paid by the person responsible for paying the commission - usually the seller.

REALTOR commissions are taxable even if the total GST owed is reduced by a rebate, or the sale of the property is exempt form 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 fees for appraisals, referrals, surveys and legal assistance. Again, GST is charged on these fees regardless of whether the house you purchase is exempt from the tax.

One exception is that mortgage broker fees are exempt from GST if the fees are charged separately from any taxable real estate commissions. Additionally, mortgages and interest on mortgages are GST exempt.

GST and Rent

No GST is payable on residential rents. However, if you employ a REALTOR or another professional to find and arrange a tenant for your rental property, GST applies to the fees and commissions they charge for providing this service. GST also applies to the fees charged to the landlord for property management, as well a repair and maintenance services. Monthly fees charged by condominium associations are not subject to GST.

When is GST payable?

GST is normally due and payable when the real estate transaction is completed. This is usually referred to as the "closing date." In some cases, GST could be payable on transfer of possession.

For buyers, GST owed on the purchase price of non-exempt property, as well as fees and commissions for professional services, is paid at closing.
For sellers, GST owed on fees and commissions for professional services is also paid at closing.
Your REALTOR can answer your questions about the closing date and GST payments. For additional GST information, contact your local Revenue Canada Tax Services Office.

Whether you're buying or selling a home, the Goods and Services Tax, or GST, will probably apply to the transaction. However, with GST rebates and exemptions, figuring out its impact on your transaction can be confusing. Real estate professionals are familiar with this tax and can help you understand how it works.