The Tax on Chattels
By Brian Madigan LL.B.
NOTE: READER BEWARE
The following article is untrue.
Tax on Chattels
I had written and published several articles to the effect that HST applies to the chattels component in a residential real estate transaction. There was Retail Sales Tax but no GST.
With the new Harmonized Sales Tax, I was among the first to write to the effect that the HST applied. It does not. Now, that’s a change! No tax from the Taxman, who would ever have thought that?
So, here’s the problem: I did a quick Google search and found that I come up quite a few times. The original article was old and long since staledated.
This presents a little problem with Google because it ranks rather highly.
If I publish another article, it may not come up or be found. That’s why I have decided to leave this one in place with the disclaimer.
Remember, that all articles are only as good as the day they are published. This one ranks quite highly, but it is wrong. Apologies! I have over 2,300 articles out there. There are bound to be others that are out of date as well.
If you are looking for a source, please refer to the CRA site, and the Provincial site dealing with the Land Transfer Tax.
Brian Madigan
Knowing the difference between chattels and fixtures makes quite a difference to the taxes payable in respect to a real estate transaction in Ontario.
Fixtures are taxed under the Land Transfer Tax Act (Ontario). The rate is about one half of one percent. Fixtures are not itemized as such, they are simply part of the overall allocation to the land in the transaction.
Chattels are taxed under the Excise Tax Act (Canada). That Act imposes the Goods and Services Tax (GST) in some provinces and the Harmonized Sales Tax (HST) in other provinces, including Ontario.
In Ontario, the HST is assessed on the value of the chattels conveyed as part of a real estate transaction. The rate in Ontario is 13%, or about 26 times the tax rate charged on fixtures.
Assuming, $10,000.00 in items under consideration, the HST would be $1,300.00 while the Land Transfer Tax would amount to $50.00. The tax saving would be $1,250.00 if the items were fixtures rather than chattels.
Naturally, there are offences which deal with tax evasion. So, knowing the distinction between chattels and fixtures is an important defence should the taxing authorities take the position that the allocation was inappropriate. Wilful intent is a necessary ingredient in tax fraud. Offering a good explanation, may mean the difference between a criminal offence and related penalties and a civil error in judgment, which results simply in a tax reassessment.
The allocation between land and chattels is made in the Affidavit of Residence and Value of Consideration in each real estate transaction. Taxes are remitted as required in accordance with the allocation, subject to future reassessment if necessary. The payment is coincident with registration.
The determination of the classification of fixtures and chattels can sometimes be difficult, and it extends well beyond the issues of what should or should not be part of a sale in a real estate transaction.
Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com
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