Welcome!

By registering with us, you'll be able to discuss, share and private message with other members of our community.

SignUp Now!

Who pays GST on a commercial building....the vendor or purchaser?

ccameron

0
Registered
Joined
Sep 27, 2007
Messages
47
I recently had an accepted offer to purchase on a commercial building. The contract that I agreed to, had the vendor paying the GST tax on the sale which is aprox. $5700.00. My real estate agent now informed me that it was a mistake on both parts as the GST on commercial buildings is paid by the purchaser. My agent further informed me that if I had a GST registered number I would be able to recover this added expense. My lender warned me that it is not that easy of a practice to simply add a GST number and be 100% certain that it would be paid back to me.?. Any comments Thank you Chris
 

Thomas Beyer

0
REIN Member
Joined
Aug 30, 2007
Messages
13,881
ALWAYS the pruchaser.

Of course, you both could agree that the price gets lowered such that it is "free" for the purchaser !

When you buy a new car or a new jacket .. who pays the GST ? Same in real estate !
 

Marek2086

Inspired Forum Member
Registered
Joined
Dec 29, 2007
Messages
61
I would strongly advise you speak to an expert on this one. You should be charging GST on commercial rental space but how are you going to do that if you don`t have a GST #. I think you can start collecting GST the day you specify on the GST application form but speak to professionals on this one.

When I purchased a property we both had to pay GST on the commercial part of the building but since we both were GST registered it was a wash and even though we both paid it no money exchanged hands on the GST.

Also even though you are responsible to pay the GST I think you can negotiage for the seller to pay the GST especially if its a hard to sell property.
 

ccameron

0
Registered
Joined
Sep 27, 2007
Messages
47
QUOTE (marek5 @ Jan 24 2008, 06:18 AM) I would strongly advise you speak to an expert on this one. You should be charging GST on commercial rental space but how are you going to do that if you don`t have a GST #. I think you can start collecting GST the day you specify on the GST application form but speak to professionals on this one.

When I purchased a property we both had to pay GST on the commercial part of the building but since we both were GST registered it was a wash and even though we both paid it no money exchanged hands on the GST.

Also even though you are responsible to pay the GST I think you can negotiage for the seller to pay the GST especially if its a hard to sell property.

Thank you very much for the advice.
 

Thomas Beyer

0
REIN Member
Joined
Aug 30, 2007
Messages
13,881
I highly suggest you get a GST # .. ASAP !!

This can be you, the person, or you, a company !

Then you can deduct GST for your expense from it.

Commercial real estate involves GST .. get familiar with it .. or hire a new accountant .. and get a GST # .. it is a phone call away .. no worries, CRA is usually helpful in doing it !
 

ToddStokowski

0
Registered
Joined
Oct 26, 2007
Messages
474
Hello, this may work out to your benefit, depending on how the Offer to Purchase was written.

As mentioned above, if the property is commercial, it is a taxable transaction as far as GST is concerned.

The possible opportunity here is that you may be able to go back to the Vendor and state that the purchase price was GST included, hence; you just reduced the purchase price by approximately 5%.

Get some good legal and accounting advice - it may save you a wack of dough.

Todd Stokowski, CA
 

Thomas Beyer

0
REIN Member
Joined
Aug 30, 2007
Messages
13,881
QUOTE (ToddStokowski @ Jan 27 2008, 06:23 PM) Hello, this may work out to your benefit, depending on how the Offer to Purchase was written.

As mentioned above, if the property is commercial, it is a taxable transaction as far as GST is concerned.

The possible opportunity here is that you may be able to go back to the Vendor and state that the purchase price was GST included, hence; you just reduced the purchase price by approximately 5%.

Get some good legal and accounting advice - it may save you a wack of dough.

Todd Stokowski, CA

it is USUAL that GST is on top .. so yes, you can try to "pretend" that GST is included .. but not every seller is this dumb !
 

ToddStokowski

0
Registered
Joined
Oct 26, 2007
Messages
474
Good point, but smart or dumb - makes no difference, it comes down to the wording in the Purchase Contract.

I have seen very experienced people caught in this respect and novices not affected.

GST is overlooked in so many contracts and is usually an after thought, usually because Vendors and/or their agents don`t take the time to determine their position when listing the property.

You would be surprised to see what I have seen (or have not seen) in commercial contracts.

Todd Stokowski, CA
 

JacquieMillante

0
Registered
Joined
Sep 20, 2007
Messages
16
There is a form that is filled out upon closing that will cancel out GST filings if both the vendor and the buyer are GST # holders. I will find out the number of the form tomorrow and post it for your information. We have always used this form to close on commercial buildings.

Jacquie
Axis R/E Partnerships
 

willy

0
Registered
Joined
Feb 7, 2008
Messages
51
found this interesting link that helps explain:

http://www.carters.ca/business/GST1999.htm

You didn`t mention if your commercial property was residential or not. If it is, you may be eligible for the Residential Complex Exemption (Used Residential Property).
There`s a disclaimer at the bottom of that page. In other words, don`t take anybody`s word for it, talk to a lawyer who knows.

w
 

Cargren

0
REIN Member
Joined
Oct 11, 2007
Messages
189
QUOTE (JacquieMillante @ Feb 5 2008, 09:38 PM) There is a form that is filled out upon closing that will cancel out GST filings if both the vendor and the buyer are GST # holders. I will find out the number of the form tomorrow and post it for your information. We have always used this form to close on commercial buildings.

Jacquie
Axis R/E Partnerships


Hello Jacquie,

Are you saying you didn`t have to pay GST at all on your purchases of commercial properties? Some time back I purchased land for building a spec home. I have a GST # and remember that I filled out a form so that I didn`t have to pay GST. This saved me from either coming up with extra cash or financing the GST.

I`m looking to buy a new commercial property for leasing out for a retailer, and am wondering if this would apply here as the GST would be around $50,000 and would take forever to recuperate through credit on the monthly GST charged to lessee.

Thanks for any help you are able to provide.

rob
 

Cargren

0
REIN Member
Joined
Oct 11, 2007
Messages
189
QUOTE (Cargren @ Mar 2 2010, 01:31 PM) Hello Jacquie,

Are you saying you didn`t have to pay GST at all on your purchases of commercial properties? Some time back I purchased land for building a spec home. I have a GST # and remember that I filled out a form so that I didn`t have to pay GST. This saved me from either coming up with extra cash or financing the GST.

I`m looking to buy a new commercial property for leasing out for a retailer, and am wondering if this would apply here as the GST would be around $50,000 and would take forever to recuperate through credit on the monthly GST charged to lessee.

Thanks for any help you are able to provide.

rob

Now that I think of it, I believe this is the way it works,

I pay GST when I purchase the property. Normally I would fork over the full amount of the GST, and then claim an input tax credit for that amount and get reimbursed. However, this is a process that can take several months, so for cash flow reasons the government provides a form that speeds up this process by completing the transaction in one step on the day of closing, thus saving the buyer having to temporarily fund the GST amount.

I now charge the tenant GST on the lease and pay that when I file monthly, quarterly, or annual GST reports.

Is this correct?
 

Cargren

0
REIN Member
Joined
Oct 11, 2007
Messages
189
QUOTE (Cargren @ Mar 2 2010, 01:59 PM) Now that I think of it, I believe this is the way it works,

I pay GST when I purchase the property. Normally I would fork over the full amount of the GST, and then claim an input tax credit for that amount and get reimbursed. However, this is a process that can take several months, so for cash flow reasons the government provides a form that speeds up this process by completing the transaction in one step on the day of closing, thus saving the buyer having to temporarily fund the GST amount.

I now charge the tenant GST on the lease and pay that when I file monthly, quarterly, or annual GST reports.

Is this correct?

More research has, I believe, answered my own question. Because I am a GST registrant, GST is not payable at time of closing on taxable commercial property. I am required to self-assess GST on the purchase for the reporting period in which the tax became payable. So basically the tax is zeroed out and I end up up remitting the GST collected on rent.
 

ToddStokowski

0
Registered
Joined
Oct 26, 2007
Messages
474
Hi again Rob,
I posted the treatment of the GST on the purchase on another thread.

To answer your question about the GST on the commercial rents - yes, you are required to collect GST on the base rent and all the triple net charges and remit same to CRA on your GST returns.

You can also claim input tax credits on any GST you paid out in the process of operating the property.

Todd Stokowski, CA
 

Thomas Beyer

0
REIN Member
Joined
Aug 30, 2007
Messages
13,881
QUOTE (Cargren @ Mar 2 2010, 02:15 PM) More research has, I believe, answered my own question. Because I am a GST registrant, GST is not payable at time of closing on taxable commercial property. I am required to self-assess GST on the purchase for the reporting period in which the tax became payable. So basically the tax is zeroed out and I end up up remitting the GST collected on rent.
not quite .. let`s say you buy an asset for $1M .. 5% GST or $50,000 is payable to CRA. You have to pay him or CRA .. and yes you will collect GST on rent, say $100,000 or $5000 .. so you get a credit of $5,000 if you have paid seller or submit $45,000 on your annual GST filing !

Usually, your GST payable is much higher if you buy an asset with an income stream and teh seller is on the hook for the GST and he would like it from you as he will submit his GST annually (or quarterly) and needs the cash to pay the GST on a large sale .. and he wants it paid by you.

Either way YOU the buyer have to come up with the GST .. either directly to seller or indirectly, later, to CRA !
 

gregbueckert

0
Registered
Joined
Feb 12, 2008
Messages
9
If your signed agreement states the vendor is responsible for paying GST, he pays. Period. How it is done is semantics. If he doesn`t pay, the deal can be voided or you can sue for damages. And sue the Realtor too, then get a new one. You are getting bad advice and should have a quick talk with a good lawyer - one registered letter from a lawyer to the vendor cc`d to your Realtor will clear this up nicely.

greg bueckert


QUOTE (ccameron @ Jan 23 2008, 09:05 PM) I recently had an accepted offer to purchase on a commercial building. The contract that I agreed to, had the vendor paying the GST tax on the sale which is aprox. $5700.00. My real estate agent now informed me that it was a mistake on both parts as the GST on commercial buildings is paid by the purchaser. My agent further informed me that if I had a GST registered number I would be able to recover this added expense. My lender warned me that it is not that easy of a practice to simply add a GST number and be 100% certain that it would be paid back to me.?. Any comments Thank you Chris
 

ToddStokowski

0
Registered
Joined
Oct 26, 2007
Messages
474
Based on the facts provided by Rob (in another thread) and using Thomas`s example above, this is how I see the treatment of the GST:

On purchase:
No GST paid to Vendor (since the Purchaser is a GST Registrant purchasing commercial property)
Purchaser reports the GST payable of $50,000.00 on its next GST return and claims a corresponding $50,000.00 input tax credit, netting out to zero. The result is that there is no GST remitted on the purchase.

On rent:
Collect and remit the $5,000.00 GST on the next GST return along with any other input tax credits or GST payable.

Todd Stokowski, CA
 

Cargren

0
REIN Member
Joined
Oct 11, 2007
Messages
189
QUOTE (ToddStokowski @ Mar 3 2010, 08:22 AM) Based on the facts provided by Rob (in another thread) and using Thomas`s example above, this is how I see the treatment of the GST:

On purchase:
No GST paid to Vendor (since the Purchaser is a GST Registrant purchasing commercial property)
Purchaser reports the GST payable of $50,000.00 on its next GST return and claims a corresponding $50,000.00 input tax credit, netting out to zero. The result is that there is no GST remitted on the purchase.

On rent:
Collect and remit the $5,000.00 GST on the next GST return along with any other input tax credits or GST payable.

Todd Stokowski, CA

This is excellent, Todd! I appreciate your input as always.
 
Top Bottom