HST when buying multiunit apartment building

[nchotalia]

To seasoned investors...looking at my first multi unit acquisistion



Question is when buying a multiunit property that is a combination of commercial (less than 20%) and residential units...

1. Can you structure the deal (i.e. corporation buys) to be exempt from HST?

2. In a mix as above is part of is subject to HST and part of it not?



Thanks for all your responses...and your thoughts.

 

[Thomas Beyer]

You pay HST on the commercial building portion, and on the values of appliances for the entire building.



So, in your closing documents you have to allocate four portions of the building:

a) land value

b) chattel/appliance value

c) residential building value

d) commercial building value.



You pay HST on b) and d) .. but not a) and c)

 

[Dan_Eisenhauer]

I have never had a deal large enough to warrant this process, however, when you expect to pay out a considerable amount of GST/HST, you can defer that payment by completing some paper work for CRA. I cannot offer any more comment than that. Sorry!



A tax accountant would be familiar with this process.

 

[moparcanuck]

This is getting into a complex part of GST/HST law, and I would recommend you get yourself a good accountant and make sure to make it very clear to them that you are wanting to make sure to stay onside with both Income Tax AND GST/HST (for many accountants, GST is an afterthought, if any thought).



That being said, if you are registered, and I'm going to assume a corp (due to size), you do not pay GST/HST on the purchase of real property, you actually have to 'self assess' (ie charge yourself the GST/HST) and then claim the offsetting Input Tax Credit, which nets to zero. Your vendor will have you sign a GST indemnity form which basically has you swearing on a stack of bibles that you are GST/HST registered and will perform the self assessment.



That being said, in the future, you will have to keep very good track of income and expenses, since commercial rents are taxable and residential are exempt. This means that you can ONLY claim the GST back on expenses relating to the commercial bays. Any items for the building as a whole would be claimable on a prorated basis (ie, square footage. You've already mentioned 20%)



Hope that helps.

 

[nchotalia]

Thanks everyone for these valuable comments. This confirms what my lawyer has also told me (i.e. will need to self assess and offset with ITC). Thanks for the heads up on future book keeping.