When does HST apply to a sale?

HST generally does not apply to the sale of a used residence, but will apply to a newly built residential property or a commercial property.

If the property is mixed-use (residential and commercial) HST will be applicable to the portion of the purchase price attributable to the commercial land or square footage of the property. On a working farm, for example, the house and its immediate surroundings are not subject to HST, but any other land is subject to HST. The buyer and seller may have to come to an agreement about how the purchase price is apportioned to the residential and commercial elements of the property.

HST is also payable in other circumstances: on a newly-severed lot; if the seller claimed an input tax credit when they purchased the land or made improvements to it; if the seller “substantially renovated” the residence (meaning they rebuilt 90% of the original building); or if the seller is a house flipper who derives income from buying, fixing, and reselling properties.

The seller’s use of the property can oftentimes be the deciding factor in determining whether HST is applicable to a transaction.

Both the purchaser and seller should carefully consider whether HST will be included in the purchase price, or paid in addition to the purchase price, when they are negotiating the Agreement of Purchase and Sale.

By default, the seller is responsible for collecting and remitting HST when they sell the property. However, if the purchaser is an HST registrant, they can undertake to assess and remit the HST on the seller’s behalf, and may choose to claim an input tax credit to effectively nullify the tax amount payable. A purchaser should consult an accountant for advice in this regard.