Many homeowners are confused about the HST tax on a resale home. You have to get some of the background information first to understand the HST for Resale homes completely.
The new harmonized sales tax has been made with two taxes: HST with Provincial Sales tax of 8% and the Federal GST tax of 5%. So, in total, it sums up to 13% of total harmonized tax.
A tax rise has occurred due to the new 13 percent rate being applied to many real estate services, which had previously only been subjected to one of the two taxes.
Do you have to pay HST if you purchase a resale home?
First, let’s take a look at what a resale home is.
Those homes which have been owned previously are also known as resale homes. Now, the good news is you don’t have to pay the HST tax when buying the resale home. It would be sold at an actual price decided and negotiated by the seller and the buyer.
HST is only charged when the house is sold to the buyer in new condition. But once, it is resold by the actual owner, then the HST is not applicable.
That means if you are purchasing a brand-new house or a house which have been fully renovated, in that case, you have to pay the HST Toronto.
Do I have to pay HST for other services?
Unfortunately, you have to pay for all the other services related to the home’s buying. For example, paying the legal fees, commissions, appraisals, and renovation services for the home. These are considered closing fees and should be included in your budget when calculating how much you want to spend on a property.
Is there any exception to the HST exemption?
Yes, there is an exception. For example, when the home was newly built and then sold to the corporation, but they never paid the GST on it, or when the home is substantially renovated from its initial structure, it will be subject to the HST.
Most of the homes which are going to be resold are renovated. However, the level of renovation differs. Some could be renovated significantly, like new floorings, windows, and bathrooms, etc. However, if the home wasn’t rebuilt or renovated completely, it hasn’t met the qualification of “substantially renovated” by the CRA. Therefore, HST wouldn’t be applied to it.
In a nutshell, HST is not applicable to the purchase of resale homes. Most of the homes have been renovated and then sold, but if the renovation is done with just the minor modifications of the house, e.g., changing the floorings, ceilings, etc. Then, it doesn’t qualify for the payment of HST. However, if it has been substantially renovated, that means if it is completely renovated, you’d have to pay the HST on purchasing that house.
On the other hand, HST would be charged on the homes which have been newly built. The actual owner who will purchase the home for the first time has to pay the HST.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.