Jazz Gill

The transitional rules explain how HST will apply to transactions that straddle the start-up date. For purposes of the following discussion, it is assumed that a REALTORS® commission becomes due or is paid when the property is sold or leased.

The HST would generally apply to a REALTORS® services to the extent, expressed as a percentage, that the services are performed on or after July 1, 2010. However, if 90% or more of the services are performed before July 1, 2010, the HST will not apply.

For example, a REALTORS® services are performed from June 1, 2010 to July 2, 2010 with the sale of the property closing on July 2, 2010. The REALTORS® commission becomes due at the time of closing. More than 90% of the REALTORS® services were performed before July 1, 2010. In these circumstances, the GST at the rate of 5% will apply to the REALTORS® services.

In another example, a REALTORS® services are performed from May 1, 2010 to July 31, 2010 with the sale of the property closing on July 31, 2010. The REALTORS® commission becomes due at that time. In this case, 2/3 of the services were performed from May 1, 2010 to June 30, 2010 and 1/3 of the services were performed from July 1, 2010 to July 31, 2010. The REALTOR® will charge GST on 2/3 of the amount charged for the services and HST on the remaining 1/3.

It is a question of fact when the REALTORS® service commences and ends for purposes of applying either GST or HST under the transitional rules. The Canada Revenue Agency will consider various factors when making a determination as to when the services are performed and how the GST or HST will apply to the commission. These factors include:
- when agreements are entered into (such as the listing agreement or buyer agency agreement and
the agreement of purchase and sale) and when the transaction closes;
- the records retained by the REALTOR®, such as mileage logs; and
- the time period during which the REALTOR® is engaged by the client.

Further, the Canada Revenue Agency has indicated that it will take a fair and reasonable approach in the circumstances.

In general, the service commences when the agent and client sign a listing agreement or buyer agency agreement. The service may conclude when the deal has “closed” – (leased or sold). It may or may not conclude when an agreement of purchase of sale/lease has been signed because the REALTOR® could still provide some services up to the time the REALTOR® is paid when the deal closes.

Canada Revenue Agency and Finance officials have indicated verbally that a reasonable basis to apply the 90/10 percent rule and to determine how much HST will be payable on the services may be to prorate the number of calendar days:
- before July 1, 2010 (GST applies); and
- after June 30 (HST applies)
over the time period beginning with the listing of the property and ending on the completion of the sale/lease. The application of this approach will depend on your particular circumstances.

There are three general approaches that a REALTOR® may take depending on the REALTORS® circumstances and how conservative the REALTOR® wants to be. The most conservative approach is to charge and collect GST or HST based on when the transaction closes. If the approach is questioned by the client, the REALTOR® can decide whether or not it is appropriate in the circumstances to adjust the amount of tax (and take an offsetting adjustment in the REALTORS® return) or to advise the client that the client may make a tax paid in error claim.

Another, less conservative approach is to allocate the fee between the services performed before July 1, 2010 and on or after July 1, 2010, based on the date of the listing agreement or buyer agency agreement and when the transaction closes.

The least conservative approach is to allocate the fee between the services performed before July 1, 2010 and on or after July 1, 2010, based on the date of the listing agreement or buyer agency agreement and when a firm agreement of purchase and sale is concluded. For example, if a REALTOR® determines in the REALTORS® circumstances that the REALTORS® services were performed prior to the date on which the agreement of purchase and sale was signed, the REALTOR® should be prepared to provide documentation to support this if the transaction is reviewed at audit. It is recommended that you discuss with your tax advisor an appropriate approach in your circumstances.

Enquiries

Details are provided below, including links to common questions and answers, background information, and ongoing updates on REALTOR Link. Members are encouraged to review this information. If, after reviewing this information, you require more detail, you can contact:

• The provincial government HST enquiry line at 1-800-337-7222
• The Canada Revenue Agency GST/HST enquiry line at 1-800-959-8287
• TREB staff at 416-443-8000 ext. 8043 or mritacca@trebnet.com

Background

The provincial government has announced that it intends to combine the eight percent Provincial Sales Tax with the five percent federal Goods and Services Tax, creating a 13 percent Harmonized Sales Tax (HST).

• The HST is NOT YET IN EFFECT. The provincial government has indicated that it intends to bring the HST into effect beginning on July 1, 2010; however, note transition rules below.
• HST will not apply on the purchase price of re-sale homes.
• HST would apply to services such as moving cost, legal fees, home inspection fees, and REALTOR® commissions.
• HST will apply to the purchase price of newly constructed homes. However, the Province is proposing a rebate so that new homes across all price ranges would receive a 75 per cent rebate of the provincial portion of the single sales tax on the first $400,000. For new homes under $400,000, this would mean, on average, no additional tax amount compared to the current system.

Transitional Rules for New Housing

Generally, sales of new homes under written agreements of purchase and sale entered into on or before June 18, 2009 would not be subject to the provincial portion of the single sales tax, even if both ownership and possession are transferred on or after July 1, 2010.

The tax would also not apply to sales of new homes under written agreements of purchase and sale entered into after June 18, 2009 where ownership or possession is transferred before July 1, 2010.

Additional Transitional Rules

• Where services straddle the HST implementation date of July 1, 2010, the tax charged for the service may have to be split between the pre-July 2010 and post-June 2010 periods. However, the HST will generally not apply to a service if all or substantially all (90% or more) of the service is performed before July 2010.
• Four key timelines are important (see below). All are based on the earlier of the time the consideration is either due (In general, an amount is due on the date of the invoice or the day required to be paid pursuant to a written agreement), or is paid without having become due. If consideration is due or paid,
  • Before October 15, 2009, HST will generally not apply (however, see above transition rules for new housing).
  • From October 15, 2009 to April 30, 2010, certain business that are not entitled to recover all of their GST/HST paid as input tax credit may be required to self-assess the provincial component of the HST with respect to goods or services supplied after June 30, 2010.
  • From May 1, 2010 to June 30, 2010, HST will generally apply for services supplied after June 30, 2010.
  • After June 30, 2010, HST will generally apply. An exception to this rule would be where ownership of the property is transferred before July 2010 or the invoice relates to services provided before July 2010.
• With regard to the lease or license of goods, including non-residential real property, HST will generally apply to lease intervals or payment periods on or after July 1, 2010 and the general rules noted above will apply. However, where a lease interval begins before July 2010 and ends before July 31, 2010, it is not subject to HST.
• With regard to the sale of non-residential property, HST is due where both possession and ownership of non-residential property occurs on or after July 1, 2010.