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 There are bound to be others that are out of date as well.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.
The issue of taxes is always around. Initially, real estate transactions were exempt from taxation. Then, land transfer taxes were introduced. They were based on the total purchase price. Then came provincial sales taxes. They applied only on the value of the chattels. The GST applied to commercial transactions. Then the City of Toronto brought in its own land transfer transfers.
Now, we have a new tax, it is the Harmonized Sales Tax, which will come into force in July. It amalgamates the PST and GST to some extent. The GST rules will apply. The former PST exemptions will no longer be available. There will be one tax. However, this new tax will have broader applications and fewer exemptions. The implementation date is 1 July 2010.
Let's have a look at the standard form agreement of purchase and sale and see what it says in the "GST/HST" clause:
"7. GST/HST: If the sale of the property (Real Property as described above) is subject to Goods and Services Tax (GST) or Harmonized Sales Tax (HST) then such tax shall be __________ (included in/in addition to) the Purchase Price. If the sale of the property is not subject to GST or HST, Seller agrees to certify on or before closing, that the sale of the property is not subject to GST or HST. Any HST on chattels, if applicable, is not included in the purchase price."
This is a new provision in the Ontario Real Estate Association's standard forms. The real estate practitioner must determine whether the GST up to 30 June 2010, or the HST thereafter, is:
1) included in the purchase price, or
2) in addition to the purchase price.
Obligation for Payment
The GST is 5%, and the HST is 13%, so who pays, the seller or the buyer? That's the first decision and it should be made perfectly clear in the agreement.
If there is no GST, or HST, then the obligation falls upon the seller. The seller will so certify before the closing.
If chattels are part of the transaction, then their value is still subject to HST. This amount will have to be calculated and is not already included in the purchase price. The buyer will have to complete an affidavit specifying the value of the chattels and pay HST on closing based upon that value.
Naturally, the value of any fixtures would already be included in the purchase price.
If there is some other arrangement negotiated between the parties then any differences from this clause should be noted and documented in the agreement.
It should also be observed that many offices continue to use older forms which could give rise to a difference in interpretation since the HST is not mentioned.
So, be careful, particularly when it comes to taxation. Thirteen per cent can be a lot of money.
Brian Madigan LL.B., Real Estate Broker, is an author and commentator on real estate markets, finances and law