Today I will explain to you: HST involved in the transfer of uncompleted properties. Do I need to pay HST when transferring uncompleted properties? If necessary, how is it calculated?

1 What is “off-the-plan transfer”?

Transfer of off-the-plan property means that the buyer of the new house sells the house before the new house is completed and moved in. In other words, he/she actually transfers the purchase contract signed with the builder after signing the new house purchase contract with the builder before the construction of the new house is completed. This transfer is not actually a sale of the property because the transferor does not actually acquire title to the house. This kind of transfer is understood from the perspective of the tax bureau. In fact, the initial purchaser of the off-plan property purchased something pre-designed and built with the builder and signed a contract together. The purchaser only paid a deposit and then had to wait a few years. , the ownership of the home cannot actually be transferred to the purchaser until the property is built. During this period, if the original buyer sells the house before it is completed and handed over, that is, before the ownership of the house is transferred, it is not a real estate resale transaction, but what we commonly call an "off-the-plan transfer."

Whether HST is required to be paid during the transfer of uncompleted property? The criteria for measurement depend on two aspects:

1) Is it profitable to transfer off-the-plan property?

2) What is the purpose of the initial purchase of the off-the-plan property?

Among the hundreds of off-the-plan property transfer cases our firm has handled in the past, 90% of the off-the-plan property transfer business will be “simply and crudely” defined by the Canada Revenue Agency as “transactions for profit.” The transferor will be regarded as the builder, so the transfer of the off-plan property will definitely involve the payment of HST.

So do all transfers of off-the-plan properties have to pay HST? Based on our experience, the answer is no.

The following are two common situations:

(1) The safest and most convenient transfer method that does not involve HST: that is, the buyer who originally signed the house purchase contract and paid the deposit returns the off-plan contract to the house builder and gets the deposit back from the builder; let the new The buyer re-signs the purchase contract directly with the builder. However, this method is rarely used in practice, because the initial buyer will lose the interest and opportunity cost of the deposit in vain, which is unreasonable in a market with rising housing prices.

(2) Even though the original purchaser transferred the uncompleted property and made a profit from it, HST can be avoided if he can provide a reasonable reason for the initial purchase and the reason why the sale of the uncompleted property is prohibited due to changes in actual circumstances.

In the cases we have handled in the past, we have found that not all transfers of off-the-plan properties will necessarily be recognized as "transactions for profit." There are some explanations for the purpose of purchasing off-the-plan properties, which the tax bureau may accept and agree not to consider the impact of HST.

The following are some points that do not consider HST’s willingness to purchase off-the-plan properties:

(1) Used to live in for a son or daughter who is in college
(2) Used to live in for parents who want or need to live there
(3) Purchased for a spouse who plans to separate from his family to live in
t45> (4) The actual area no longer meets the living needs at the time
(5) Buyers who plan to use the apartment when working in the city or visiting Toronto
(6) To live in the apartment for their engaged son or daughter
(7) The buyer wants to be close to the workplace or move to the workplace

*Note: The above purchase intentions need to be supported by corresponding certificates.

If you have experience or plan to sell off-the-plan properties, and can provide relevant evidence to support your initial purchase intention, you may wish to try HST Ruling, you may gain unexpected rewards! Our accountants are also happy to help you.

If you do not meet the conditions to avoid HST, then the calculation formula of HST in the transfer of off-the-plan property is as follows:

(recovered deposit + transfer fee) * HST tax rate

Let’s give an example below

First of all, if A purchases an off-the-plan apartment, the contract price is CAD 300,000, and according to the contract, A pays a deposit of 20%, or CAD 60,000. Soon after, A wants to transfer the property, so the first thing A wants to do is to get back the 60,000 Canadian dollars paid by A in advance. When A receives the refund of $60,000, from an HST perspective, this is not considered a return of the deposit, but will be deemed a taxable sale. This means that when A recovers the deposit of CAD 60,000, A already owes the tax bureau 13% of the HST, which is CAD 7,800.

Secondly, since A has held this property for a period of time, if possible, A will transfer it at a price higher than the contract price. Of course, this behavior must also be taxed. Suppose A transfers the property for CAD 340,000, then the increased price of CAD 40,000 will also need to pay 13% HST, which is $5,200 CAD.

Finally, the total HST payable by the transferor who transfers the uncompleted property should be:

(recovered deposit + transfer fee) * 13%

That is ($60,000+$40,000)*13% = $13,000 Canadian dollars