Understanding GST and Its Impact on Your Property Purchase

What is GST?
The goods and services tax (GST) is a value-added tax that Canada introduced on January 1, 1991. It adds 5% to most goods and services you buy in Canada, though some items are either exempt or “zero-rated.”

Who Pays the GST?
Generally, GST is included in the price of taxable items and services, meaning the buyer usually pays it. However, sellers are responsible for collecting the GST and remitting it to the government. Certain groups, such as First Nations citizens and some provincial or territorial governments, may not have to pay GST on certain transactions.

GST on New Builds
When you buy a newly built home, condo, or townhouse, GST applies to the entire purchase price—including the land. If you intend to live in the home as your primary residence, you might be eligible for a partial GST rebate, depending on the price. But if you’re buying the property as a rental investment, the full 5% GST is added.

GST on Resale Properties
For most resale properties, a special exemption called “Used Residential Real Estate” applies. This means that if the property has already been used for residential purposes (whether by an owner or a long-term tenant), the seller can claim the exemption. As a result, GST is not added to the sale price. This exemption is common in many real estate transactions, particularly in regions like British Columbia.

GST on Nightly Rental Properties
Properties used for short-term or nightly rentals are considered commercial, so they don’t qualify for the “Used Residential Housing” exemption. Sellers must charge GST on these sales. However, investors can often register for GST and claim a “Capital Acquisition Input Tax Credit” to cover this cost, meaning they don’t have to pay an extra 5% upfront. Although sometimes called “deferring the GST,” this is just a method of offsetting the tax rather than an actual delay in payment.

GST in Real Estate Transactions
GST also applies to many services related to real estate deals. For example, the 5% GST on real estate commissions is typically paid by the seller. Additional services such as inspections and legal fees are also subject to GST.

Final Thoughts
Because GST rules can be complex and vary depending on your situation, it’s wise to consult with a professional tax accountant to ensure you understand your obligations and potential rebates.

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