GST for New Properties In BC
I often get this question from sellers regarding the GST (Goods and Services Tax) implications on the sale of newly constructed property, particularly in the context of pre-sales and subsequent sales. Here's a breakdown:
GST on Initial Sale: When a newly constructed property is sold by the developer, the buyer must pay GST (5%) on the purchase price.
Subsequent Sale (Flipping): If the property is not occupied by the original buyer (either by themselves or a tenant for at least one year) and is resold (flipped), the subsequent sale is still considered a sale of new residential property. Consequently, GST is applicable on this sale as well.
Misconception: Many believe that once the first buyer pays GST to the developer, no GST is applicable on the subsequent sale. However, this is incorrect. If the property is resold without being occupied, it remains subject to GST.
Seller's Responsibility: The seller (who was the initial buyer from the developer) is responsible for collecting and remitting the GST to the CRA (Canada Revenue Agency) from the new buyer. The seller must also inform the buyer that GST is applicable on the sale.
GST Rebate: The seller who is flipping the property can register for a GST number, which allows them to claim a rebate for the GST they initially paid to the developer. This rebate can be offset against the GST collected from the subsequent sale. Therefore, the seller would be only remitting the additional GST on the lift ( profit ) from the sale.
Final GST Payment: In the event of a sale, the GST is calculated on the full sale price of the property. The seller remits the difference between the GST collected on the resale and the GST paid initially to the CRA.
This information crucial for anyone involved in real estate transactions in Canada, especially in the context of new property sales, to ensure compliance with GST regulations.
The above explanation of GST and reselling new properties should apply to most circumstances with the nuances outlined in the article. However, policies may change by the time you read this article and its important to discuss the GST implications with your accountant as GST is often a complex topic as unique situations may change this. Feel free to contact me if you have further questions regarding this topic.
*I do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
