GST is not paid on residential rent.
But, that raises an interesting questions, ones that I do not know the answer to. Does GST get paid on the Option Fee and on the monthly credit?
If the answer is, "Yes", what happens if the Tenant-Buyer fails to complete at the end of the deal? Probably, some GST would still be owing at that time. It is then a used house, and supposedly, GST would not be paid by the next owner. However, there would likely be some GST owing at the time of the default by the TB. What happens?
As I write this I think the best way to handle GST is to factor it in as one of your non-recoverable expenses, in the same way you would legal or other acquisition costs. If you pay the GST, the TB is not obligated to do so, and there would be no issue on sale to another party.
Yesterday I learned that if you register and Agreement FOR Sale in BC, the government expects the Land Transfer Tax to be paid at that time, not when title transfers to the TB. I am willing to bet CRA will expect the same thing in an RTO. My guess is you should probably eat the GST.
Any accountants with CRA knowledge want to weigh in on this one?
But, that raises an interesting questions, ones that I do not know the answer to. Does GST get paid on the Option Fee and on the monthly credit?
If the answer is, "Yes", what happens if the Tenant-Buyer fails to complete at the end of the deal? Probably, some GST would still be owing at that time. It is then a used house, and supposedly, GST would not be paid by the next owner. However, there would likely be some GST owing at the time of the default by the TB. What happens?
As I write this I think the best way to handle GST is to factor it in as one of your non-recoverable expenses, in the same way you would legal or other acquisition costs. If you pay the GST, the TB is not obligated to do so, and there would be no issue on sale to another party.
Yesterday I learned that if you register and Agreement FOR Sale in BC, the government expects the Land Transfer Tax to be paid at that time, not when title transfers to the TB. I am willing to bet CRA will expect the same thing in an RTO. My guess is you should probably eat the GST.
Any accountants with CRA knowledge want to weigh in on this one?
As Dan stated GST is not payable on residential rent. Which is what all of the rent you collect until the option is exercised is.
Whether you pay GST on the sale is a different question because your intent is to sell a new house on a LTO that I think would be a question for the accountant. Is GST payable when they exercise the option?
Whether you pay GST on the sale is a different question because your intent is to sell a new house on a LTO that I think would be a question for the accountant. Is GST payable when they exercise the option?
But, then the other side of that question, Mark, is, "What happens if the TBs do not exercise the option?"
It is a used house at that point, and the next buyer is going to object to paying the GST... rightly so in my mind. I am willing to bet CRA wants GST paid now. And, in my mind, it is the only way to handle it. But then, I do not work for the government, nor do I understand its thinking MANY times.
Have you had a new house under a LTO contract. Who paid the GST?
It is a used house at that point, and the next buyer is going to object to paying the GST... rightly so in my mind. I am willing to bet CRA wants GST paid now. And, in my mind, it is the only way to handle it. But then, I do not work for the government, nor do I understand its thinking MANY times.
Have you had a new house under a LTO contract. Who paid the GST?
QUOTE (Dan_Eisenhauer @ Aug 13 2009, 07:51 PM) But, then the other side of that question, Mark, is, "What happens if the TBs do not exercise the option?"
It is a used house at that point, and the next buyer is going to object to paying the GST... rightly so in my mind. I am willing to bet CRA wants GST paid now. And, in my mind, it is the only way to handle it. But then, I do not work for the government, nor do I understand its thinking MANY times.
Have you had a new house under a LTO contract. Who paid the GST?
If the tenant buyers do not exercise the option the credits are normal rent then as they are non refundable.
I agree it is a used house at that point so no GST is paid.
We have done new houses and our investor pays the GST although they get a refund because it is an investment not 100% but they get a refund we have had some buy in a corp and if you buy in a corp you do not pay GST on the deal.
What happens with the GST on the build is the buyer would have paid GST on their supplies and contractors as they built the house so they would only remit the portion that they do not claim as a GST expense. So hence the Government would get the GST on the build of these properties. They just wouldn`t get the final build value GST.
I think that makes sense but I have a summer cold so my head feels like a bowling ball at the moment so let me know if it doesn`t
It is a used house at that point, and the next buyer is going to object to paying the GST... rightly so in my mind. I am willing to bet CRA wants GST paid now. And, in my mind, it is the only way to handle it. But then, I do not work for the government, nor do I understand its thinking MANY times.
Have you had a new house under a LTO contract. Who paid the GST?
If the tenant buyers do not exercise the option the credits are normal rent then as they are non refundable.
I agree it is a used house at that point so no GST is paid.
We have done new houses and our investor pays the GST although they get a refund because it is an investment not 100% but they get a refund we have had some buy in a corp and if you buy in a corp you do not pay GST on the deal.
What happens with the GST on the build is the buyer would have paid GST on their supplies and contractors as they built the house so they would only remit the portion that they do not claim as a GST expense. So hence the Government would get the GST on the build of these properties. They just wouldn`t get the final build value GST.
I think that makes sense but I have a summer cold so my head feels like a bowling ball at the moment so let me know if it doesn`t
QUOTE (Ros @ Aug 12 2009, 09:48 AM) I have built 2 side by side homes that I want to sell by way of lease to own. Do I have to pay the GST when they start renting? Any pitfalls I should beware of? Any advise would be helpful. Thanks
Hi guys,
I don`t believe Ros is referring to GST on rental income, but GST on sale of new home. I am fairly certain that if a builder/developer decides to rent rather than sell he is obligated to pay GST on the assessed/fair market value at the time lease takes place. Of course the usual swap of GST credits takes place, and he can also apply for the GST rebate which is 35% of the GST I believe.
This must take place at time of first lease or RTO, not later when house sells.
Hope this helps.
Rob
Hi guys,
I don`t believe Ros is referring to GST on rental income, but GST on sale of new home. I am fairly certain that if a builder/developer decides to rent rather than sell he is obligated to pay GST on the assessed/fair market value at the time lease takes place. Of course the usual swap of GST credits takes place, and he can also apply for the GST rebate which is 35% of the GST I believe.
This must take place at time of first lease or RTO, not later when house sells.
Hope this helps.
Rob
I do not pretend to be a tax expert, but rather I am someone who knows just enough about tax to be a threat to myself. My comments above were about GST on the sale/rental of a newly constructed house. It goes without saying that CRA is going to gets its GST at some point.
In an article on 2009 Tax Strategies in the August issue of Canadian Real Estate, it appears Rob has this right on.
"Developers who rent out new unsold housing must generally self-assess and pay GST on the fair market value of the new property at the same time possession is given to the new tenant. This rule is designed to ensure that GST is paid on new housing uints that are rented for residential use as if the units were sold to purchasers..."
The only question in my mind is whether or not someone who is not GST registered can offset the GST debits and credits as Rob suggests. If an individual is not GST registered, he/she cannot offset GST credits and debits. That leads me to think that an individual cannot do that with the purchase of a house.
If one is GST registered, as a corporation probably is, or as most Realtors and other Independent Contractors are, we can use the GST offsets, without question. It is my belief it is not possible to register retroactively. Anyone in this situation should discuss this with someone more knowledgable than I am.
In an article on 2009 Tax Strategies in the August issue of Canadian Real Estate, it appears Rob has this right on.
"Developers who rent out new unsold housing must generally self-assess and pay GST on the fair market value of the new property at the same time possession is given to the new tenant. This rule is designed to ensure that GST is paid on new housing uints that are rented for residential use as if the units were sold to purchasers..."
The only question in my mind is whether or not someone who is not GST registered can offset the GST debits and credits as Rob suggests. If an individual is not GST registered, he/she cannot offset GST credits and debits. That leads me to think that an individual cannot do that with the purchase of a house.
If one is GST registered, as a corporation probably is, or as most Realtors and other Independent Contractors are, we can use the GST offsets, without question. It is my belief it is not possible to register retroactively. Anyone in this situation should discuss this with someone more knowledgable than I am.
Dan, The best advice I can give you is "talk to your accountant". GST and specifically "CRA" is NOT an entity that you want to mess with. How do you think I know this? Hope that helps?
QUOTE (Ros @ Aug 12 2009, 10:48 AM) I have built 2 side by side homes that I want to sell by way of lease to own. Do I have to pay the GST when they start renting? Any pitfalls I should beware of? Any advise would be helpful. Thanks
QUOTE (Ros @ Aug 12 2009, 10:48 AM) I have built 2 side by side homes that I want to sell by way of lease to own. Do I have to pay the GST when they start renting? Any pitfalls I should beware of? Any advise would be helpful. Thanks