Homes & Land of Ottawa

No HST on resale homes

An Ipsos Reid survey commissioned by the Ontario Real Estate Association (OREA) and released late last month revealed that fully 56 percent of Ontarians mistakenly believe that the new Harmonized Sales Tax (HST) applies to the full purchase price of a resale home. This is simply not true.

Why is that so? Well, HST applies only to items which were previously subject to GST. Newly built homes and substantially renovated homes had GST added to the purchase price. However, resale homes were exempt from GST, and thus remain exempt from HST.

There are a few exceptions to this general rule; for example, if the home being purchased was first bought by a corporation and therefore GST was never paid on it; or if the home has been substantially renovated from its original structure, it is subject to HST. The Canada Revenue Agency defines substantially renovated as follows: Major changes have to be made to meet the definition of a substantial renovation. In a major renovation project, the interior of a building is essentially gutted. This type of renovation project qualifies as a substantial renovation. Generally, 90% or more of the interior of an existing house is the minimum that has to be removed or replaced to qualify as a substantial renovation.

So, for example, if a homeowner has renovated the kitchen and bathrooms but the remaining rooms have no structural modifications, the home is probably not going to qualify as substantially renovated and thus no HST is applicable upon the sale of the home. To be absolutely certain, before you buy, check with your accountant, lawyer or tax professional to make certain that the specific home you wish to purchase is not subject to HST.

The new HST is payable on certain services associated with the purchase of a home, such as legal fees, real estate commissions, moving fees, appraisals, and home renovation services, because all of these were subject to GST. Household purchases such as furniture, barbeques, lawn mowers, building materials and landscaping materials are unaffected by the change in any way but the name of the tax, as they were already subject to both GST and PST.

For more detailed information about what is and is not taxable under the new HST legislation, visit http://www.rev.gov.on.ca/en/taxchange/taxable.html.