When perusing Whistler real estate listings, you might have come across a sentence in the property description proclaiming “No GST!” or “GST applicable”.
Understanding GST – and whether or not it applies to the property you’re buying or selling – is important, because it may add a significant amount to your purchasing expenses.
GST – What Is It?
GST stands for “Goods and Services Tax”. In BC, GST is 5%. As the name suggests, GST applies to most goods and services: clothing, hotel rooms, a haircut, etc.
GST and Real Estate
If you are buying a home that was last used by an individual (or family) as a place of residence, you do not have to pay GST on it. This applies to most residential sales in BC.
However, there are two important instances when GST does apply to real estate.
The first case where GST applies to real estate is on the sale of new housing. If you’re buying a newly built residence that has not been lived in, a 5% GST is applicable to the purchase price.
The second case where GST applies to real estate is on the sale of commercial real property. If a property has been rented short-term (or nightly), then it is considered a commercial property, and GST is applicable. However, as we will discuss later, a GST applicable property does not necessarily mean that the purchaser has to pay a 5% GST tax on top of the purchase price; in some circumstances, the GST can be waived.
Some commercial properties are easy to distinguish: for example, if you’re buying a retail space, then it is GST applicable. Phase 2 properties are GST applicable, too.
GST and Phase 1
Understanding GST becomes a little more complicated when it comes to Phase 1 properties. As a refresher, Phase 1 properties are units (typically condos or town homes) with a Phase 1 covenant registered to title, which outlines the property’s permitted uses. These uses are: personal use; long-term rental; and short-term (nightly rental).
A Phase 1 property that has most recently been used for personal use or long-term rental is NOT GST applicable. If the Smith family is selling their town home in the Lagoons, which they occupied only for personal use and never rented out, the new purchaser will not have to pay GST. If the Miller family is selling their condo in the Aspens, which they have rented out to a monthly tenant for the five years they have owned it, the new purchaser will not have to pay GST.
On the other hand, if the Watsons are selling their investment condo in Town Plaza, which they rent nightly to visiting tourists, their property is GST applicable.
Registering for GST and the Input Tax Credit
If you rent out a property on a nightly basis, you must be charging GST on the rental rates. As such, you must be registered for a GST account.
Similarly, if you are purchasing a property for which GST is applicable, you must also register for a GST account. Details for registering for a GST account are available here. It can be done for free online.
Here’s where it gets tricky:
If you are registered for GST before you take possession of the GST applicable property, the GST can be waived.
If you are not registered for GST before you take possession of the GST applicable property, you have to pay the 5% GST. However – when you register at a later date, you can claim a refund (called the Input Tax Credit) on your GST return.
Changing the Use of a Property
If you plan on changing the use of the property – for example, if you are purchasing a Phase 1 unit that was rented nightly by the previous owner (GST applicable) but you have no intentions of renting it nightly yourself – you should obtain professional advice, since each transaction will have its own unique circumstances.
The information in this blog post serves as a good general guideline for understanding how GST affects your Whistler property, but you should always obtain professional advice from an accountant before making any decisions regarding GST.
For more information, visit http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/gnrl/menu-eng.html, http://www.lamlonishio.ca/uploads/2-RETaxWithEgNightly.pdf, or contact me.