Generally speaking, the amount of GST that you have to pay is based on the total value of your real property and other personal property. However, there are special rules for families farm businesses, non-residents and individuals who hold real property as part of a business. In addition, there are also some exemptions for residential rentals, taxable supplies, and intangible personal property.
Often, people find themselves in a bind when it comes to purchasing or selling real property. It is important to understand the tax status of the property you are buying or selling. Buying or selling real estate can be a complex process, and not knowing what your situation is can be a costly mistake. Fortunately, there are rules and guidelines that will help you navigate the process.
Real property includes a building, land, rights, interests, or other structures. These structures can be located in Canada or abroad. When buying or selling real property, it is important to know whether you are purchasing or selling a residential complex or a commercial building.
A residential complex includes a building that is primarily used for residential purposes. For example, a building with 20 residential units would qualify as a residential complex. Residential complexes may also be used in the course of commercial activity. If the building is used for commercial activities, you can claim input tax credits for the costs of real property used for commercial purposes.
When buying or selling real property, you may also be able to claim ITCs. These credits can be claimed for the cost of real property used for commercial activities, as well as costs for real property improvements. A landlord of a 20-storey apartment building may claim ITCs for the cost of electricity for the entire building. However, the allocation of ITCs may not be the same as the allocation for the costs of capital improvements.
If you buy or sell real estate, you may also be responsible for self-assessing the tax. This means that you will report the tax on your regular GST return. The amount of tax you pay will not be included in your net tax calculation. If you are a non-resident seller of real estate, you are not subject to self-assessment. However, you may still be required to collect the tax from the purchaser.
Non-resident sellers were considered high risk, and were often relieved from collecting the tax. However, these rules do not apply to individuals who have a permanent establishment in Canada.
Intangible personal property
Whether you are a non-resident supplier of goods and services in Canada, or a non-resident person who makes a taxable supply in Canada, you must register for GST/HST. If you do not register for GST/HST, you will not be able to claim an input tax credit for the GST/HST you pay on taxable supplies in Canada.
In Canada, taxable supplies are goods, services and intangible personal property. Non-residents who make taxable supplies in Canada must register for GST/HST if the supply is made in Canada, or through a permanent establishment in Canada. For supplies made outside Canada, non-residents are not required to register for GST/HST. However, they are required to remit taxes to us if they are deemed to have made a sale in Quebec. The registrant will be able to claim an input tax credit if the supplier acquires intangible personal property for use exclusively in commercial activities.
Taxable supplies of intangible personal property are characterized as services, or electronic supplies. These supplies are usually supplied by download, where the customer is provided with a copyrighted digitized product. The customer is also provided with the right to use the product. After the license is terminated, the product is deleted.
For taxable supplies of goods, there are special rules for suppliers of print books and magazines, and suppliers of non-resident book and magazine publishers. Printed books are exempt from provincial HST, and they may qualify for a 100% federal HST rebate. For printed books, a vendor can recoup the full input tax credit.
Digital supplies, such as software, are characterized as intangible personal property, and typically involve a customer downloading a digitized product from the supplier. The customer acquires the right to use the product, or the right to use the product for a period of time not exceeding its useful life.
The rationale for defining digitized products as intangible personal property is that they have the same characteristics as tangible personal property, and they are already available for downloading. However, limiting the period of use does not alter the characterization as intangible personal property.
Exempt residential rentals
Generally speaking, you do not need to register for GST on your residential rentals. However, there are some nuances. For example, if you are planning to build a new residential rental property, you may be able to qualify for the new residential rental property rebate. This rebate is based on the fair market value of each unit in the complex.
For example, if you buy a new house and rent it out for a year, you can claim a rebate of up to 5% of the purchase price. However, if you rent it out for longer than a year, you will be required to pay GST.
The best way to qualify for the rebate is to have the “first use” of the rental property be for residential use for at least a year. You should also keep records of your rental income for at least 7 years. This documentation will help you avoid the CRA’s assessment of you.
The rebate is divided into a federal component and a provincial component. The federal component is limited to $6,300. If you purchase a unit that is worth $450,000 or more, the federal component is reduced by a percentage based on its value. This is a great way to offset GST/HST paid when you purchased the property.
Depending on the structure of your rent-to-own agreement, you may also qualify for a builder-landlord rebate. In this case, you will need to consult with a real estate expert to determine whether you qualify. During this process, you may also be contacted by the CRA or QRA.
There are also special GST/HST implications associated with renting a unit in a residential complex. For example, you may not be able to claim an input tax credit (ITC) on taxable services or on the costs of completed improvements.
You may also be eligible for a builder-landlord rental rebate if you hire a builder to complete the renovations. However, this may be more complex than it sounds. You should consult with a professional real estate valuation expert. You will need to defend your valuation report in the event of a CRA challenge.