Is there HST on Resale Property?
Many homebuyers and sellers ask about the HST tax on resale homes in Ontario. The presence or absence of this tax can have a profound impact on both sides of the transaction.
First, some background information:
The Ontario Government enacted legislation which implemented the HST tax, which took effect on July 1, 2010.
The HST tax combined the Provincial Sales Tax of 8% percent with the Federal GST Tax of 5% percent, to create a new “harmonized” total tax of 13% percent.
A tax increase occurred because the new 13% percent amount became applicable to many real estate services which previously only had one or the other tax applied.
HST Tax on Real Estate
In Ontario, we can look at three different types of real estate transactions:
- Resale residential houses and condos ALMOST NEVER have any HST to pay
- New construction residential properties DO have HST to pay
- Commercial properties, whether they are new construction or resale, ALWAYS have HST to pay
Tax Risks and HST Pitfalls
While on the surface it’s easy to say that there is almost never any HST to pay on a resale residential property, there can be pitfalls when buying or selling.
The CRA says, for example, that if a home has had very substantial additions added to it, it could now be subject to HST.
An example of this could be if someone buys an older home on a big lot, knocks it down, and builds a new monster home. Is it now subject to HST? Most likely it is.
What if part of the original house was retained, or if the foundation was retained? It’s possible that it could be subject to HST, or maybe not. There are a lot of grey areas.
What if the property was not a reno, but was used for both residential and commercial use?
What if the property is zoned “commercial”, but is used as a residence?
It’s important to know all the intricacies, because making a mistake on the tax can be a very expensive lesson.
Every Agreement of Purchase and Sale in Ontario has a clause that must be checked indicating that the offer price either includes any HST due, or that any HST due would be in addition to the offer price.
On a million dollar purchase, that is a $130,000 dollar liability for either the Buyer to pay, or the Seller to remit.
Whenever there is even the slightest risk of an HST liability, every Buyer and Seller must consult with their lawyer or accountant to determine the risk.
Nevertheless, you can rest assured that despite the odd exception, there is almost never any HST to pay when you buy or sell a resale residential property in Ontario.
Ancillary Costs
Even though the biggest dollar item – the actual sale price of the house or condo – has no HST payable on a resale, there are still a whole range of services associated with any real estate transaction that do require payment of HST.
These services include things such as legal fees, moving costs, real estate commissions and home inspection fees. Before the HST took effect, consumers only paid the 5% Goods and Services Tax (GST) on these services.
In a nutshell, if you are a seller, there is a 13% percent tax payable on the real estate commission you pay. Lawyers’ fees for both Buyers and Sellers are also subject to the 13% percent HST.
One bit of good news – the cost of a Condominium Status Certificate has remained the same, at a legislated maximum total amount of $100, although many condo boards will charge extra fees for things such as expedited delivery.
If you are a buyer, any Home Inspection you pay for is subject to the 13% percent HST. And as mentioned above, so is the cost of your lawyer, or any movers hired.
Tax on CMHC Mortgage Insurance Fees
If you are a buyer, and are putting less than 20% percent down payment on your purchase, this is called a “high ratio” mortgage loan. In order to get a high ratio mortgage loan, you are required to pay an insurance premium, where the bank is the beneficiary!
The idea is that, due to the higher risk of a high ratio mortgage, by paying an insurance premium, the banks will feel better about loaning you the money.
So you pay the insurance premium, to guarantee that the bank gets paid back if you default.
These mortgage insurance premiums involve large sums of money.
The insurance is provided by three companies in Canada. One is called CMHC (Canada Mortgage and Housing Corporation).
The insurance fee is often called the CMHC fee, although there are actually two other companies other than CMHC that also offer mortgage insurance in Canada.
This fee, which varies depending on the amount of downpayment that you have, the length of your loan amortization, and the type of employment that you have (self employed pay a higher premium), is typically simply added to the total loan amount by your bank, saving you from having to pay it in full, up front.
There is, however, also a tax payable on the CMHC premium itself, which is due in full on the day of closing.
This tax on the CMHC premium for high-ratio mortgages was formerly always taxable at the PST amount, and the good news is, through some miracle, when HST came into effect, the tax payable on the CMHC fee remained at the PST amount only.
This is one to look out for, as it is an important part of your closing costs.
Example:
For example, if your CMHC fee is, say, $7000.00, this dollar amount gets added to the overall loan from the bank, and adds to your monthly loan carrying costs by a small amount, maybe approximately $40.00 per month. The tax on the $7000.00 fee, however, would be $560.00 (Ontario sales tax is 8%, 7000 x’s .08 = $560.00), and this $560.00 would be payable in full to your lawyer, on the day of closing. So remember to budget accordingly.
With the introduction of the HST, whether you are buying or selling a resale home in Ontario, many of the costs associated with real estate transactions have changed.
A press release from the Ontario Real Estate Association summarized some of these changes which have taken place – the example that they used was for a resale house priced at $360,000, and it was determined that the HST would add over two thousand dollars in new taxes to closing costs.
Please note, these taxes are in addition to the Land Transfer Taxes which exist for both the Province and the City of Toronto.
OREA calculated that, in total, the HST would add $313 million annually in new taxes to resale home transactions.
CURRENT TAXES PAID, VERSUS THE NEW COMBINED HST TAX PAYABLE, ON A HYPOTHETICAL $360,000 REAL ESTATE TRANSACTION:
| Taxable Services | Previous Tax Payable | New Taxes | New Total Payable |
|---|---|---|---|
| Mortgage Insurance (1) | $752.40 | $0.00 | $752.40 |
| Legal Costs | $50.00 | $80.00 | $130.00 |
| Real Estate Commission (2) | $720.00 - $1080.00 | $1,152.00 - $1,728.00 | $1,872.00 - $2,808.00 |
| Home Inspection | $20.00 | $32.00 | $52.00 |
| Title Insurance | $24.00 | $15.00 | $39.00 |
| Total New Tax | $1,749.25 - $2,325.25 |
(1) CMHC premium of 2.75% for mortgage with a 5% down payment on a
$300,000+ home.
(2) Real estate commissions are negotiable or may be a flat fee.
Estimated range of 4% to 6% used.
HST ONTARIO TAX ON RESALE HOUSES
The HST Tax on resale homes in Ontario is now an established part of the cost of buying and selling real estate in the province. We hope you have found this guide to HST on resale homes useful.
Have any questions? We are here to help! Shoot us a quick email, and we will get back to you.
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author: Randy Selzer
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