How GST Affects Homebuyers: What You Need to Know
Published on 23 December 2024 in Blog Home Buying Tips Ottawa by
The homebuying process can feel like shopping with a never ending list. Accounting for all relevant expenses means examining your current financial situation and how this purchase will impact it. And, like any other purchase, you’ll need to consider the taxes associated with buying a home. This extra cost isn’t always included in the listing price and might put you over budget despite finding your dream home. In this blog, we’ll go over when GST is applicable on the sale of real estate, who pays for it, and more. What are GST and HST?
Goods and Services Tax (GST) in Canada is typically added to the sticker price of various products. However, in some provinces like Ontario, the GST is combined with the Provincial Sales Tax (PST), which incorporates and becomes known as the Harmonized Sales Tax (HST).For example:
Base Price = $400,000
Step 1: Add Federal Tax (5%):
400,000 × 0.05 = 20,000
Step 2: Add Provincial Tax (8%):
400,000 × 0.08 = 32,000
Subtotal:
400,000 + 20,000 + 32,000 = 452,000
In Ontario, the HST is 13%. This comprises a 5% federal tax of $20,000 and an 8% provincial tax of $32,000, for a total of $452,000. How Does it Apply to Real Estate? Many real estate-related transactions, like home inspections and moving costs, are considered services for which GST/HST applies. While homes can be regarded as “goods” (the other bucket of GST), homebuyers don’t always have to pay taxes on them.Who Pays GST/HST on Real Estate?
Since homebuyers are, by definition, “buying” something, they must pay the GST/HST on top of the property’s listing price. However, there are some exceptions. Sellers may include GST/HST in the listing price, meaning it can be paid as a part of mortgage payments. Otherwise, it can be required in a lump sum before the house sale closes.When is GST/HST Applicable to Real Estate?
Looking to budget better before you start your homebuying journey? Let’s examine three main homebuying scenarios and how GST/HST affects them.Buying a Brand New Home
If you’re in the market for a new home, you’ll likely have to pay GST. Builders must charge tax on their projects due to construction and land costs. That would mean buying a $400,000 home with the tax becomes $452,00.Buying a Vacant Lot
Maybe you’re considering buying a vacant lot and building your own home to get around this. Whether or not this purchase is GST or HST-exempt depends on the seller of the land. Generally, you will not have to pay GST/HST if it is an individual. However, buying your building materials will be subject to GST/HST. Other criteria may apply. Ensure you inquire with your realtor if you want to purchase vacant land.Resale Home
Maybe the new home search isn’t for you, and you’d much prefer a home that has already been lived in. With this in mind, purchasing an already occupied residential property means you are exempt from paying GST/HST. A $400,000 resale home remains at $400,000, with no additional 13% tax added.Tax Rebates on GST/HST Real Estate Transactions
The Government of Canada does offer a tax rebate toward the GST/HST you paid to purchase a new home. Review the criteria carefully to determine an estimated rebate you could receive. For example, in Ontario, you may qualify for a provincial rebate if you paid the HST to buy, build, or substantially renovate a house. Here are some other details to keep in mind:- The house has to be your primary residence.
- You must live in the house, which cannot be used as a business.
- The house must be owned by you, not a company or other organization.