HST – Harmonized Sales Tax

What is HST?

When is it applicable and how to calculate it? In which cases the rebates are applicable and how to protect ourselves from the errors and omissions of our sale deal opponents? These questions keep bothering both the property buyers and the sellers. Here are some answers and clarifications.

HST (harmonized sales tax) is a blended federal (5%) and provincial sales tax (8%) which in total makes 13% and generally is payable on a resale of a residential property. 

HST will not be paid if the buyer bought the property for the personal use, however, if the seller had been renting out the property more than 50% of the time during the seller’s ownership, the price will likely be subject to HST. To protect himself from unnecessary risk, the buyer can request from the seller the Statutory Declaration certifying that the residential property is not the subject to HST. The seller, on the other hand, has the right to obtain the Undertaking from the buyer that the property is getting purchased for personal use. If in the Agreement of Purchase and Sale, in Paragraph 7, it states that HST is payable on a transaction, it will be the obligation of the seller to collect the tax from the buyer and remit it to the government. Where the seller fails to obtain the tax, the government has the power to obtain the tax either from the seller or the buyer. 

The first-time homebuyers are entitled to a rebate of up to $4,000 of the provincial land transfer tax and up to $4,475 of the municipal land transfer. This rebate is applicable to only someone who is a Canadian citizen or a permanent resident and who has never owned property anywhere in the world. Where the buyer’s spouse owned property while married to that person, the rebate will not be available. However, if two spouses are going on title as joint tenants, and one spouse owned a property many years ago and sold his/her property prior to getting married to the buyer, the buyer will still be entitled to the rebate half of the maximum of the total rebate, accordingly, $2,000 instead of $4,000 and 2,237.50 instead of 4,475.

Table of Land Transfer Tax Rates

Value of ConsiderationLand Transfer Tax Rate
 The first $55,0000.5% (0.005)
On the amount from $55,000.01 to $250,0001% (0.01)
On the amount from $250,000 to $400,0001.5% (0.015)
On the amount from $400,000 to $2,000,0002% (0.02)
On the amount from $2,000,0002.5% (0.25)

Land Transfer Tax Formula

Value of ConsiderationShortcut Formula
Less than or equal to $ 55,000Vc x 0.005
Between $55,000.01 and $250,000VC x 0.01 – $275
Between $250,000.01 and $ 400,000VC x 0.015 -$1,525
Between $400,000.01 and $2,000,000VC x 0.02 -$3,525
Greater than $2,000.000VC 0.025 – $13,525

If the property is located in the City of Toronto, municipal land transfer tax must also be paid. The rates are the same as those for provincial land transfer tax.

Example of Land Transfer tax calculation for the first-time buyers:

Jackie Smith is the first-time homebuyer. Her spouse, Aryan Devi, used to have a house in England that he sold six years ago, before he came to Canada and met Jackie. The property, they are planning to buy, costs 870,000.00.

Since Aryan owned a home in England, only Jackie will be entitled to a rebate, and the rebate will be a half of the maximum total rebate of $4,000 of the provincial land transfer tax. The amount is a half because they go on title as joint tenants. If they have chosen to go as common tenants, the amount would be proportional to the percent of the ownership. 

According to the Land Transfer Tax formulas’ table, the amount of $870,000.00 fits to the range from 400,000.01 and $2,000,000.

Value of Consideration x0.02 -3,525

($870,000.00 x 0.02)-3,525 = $17,400-$3,525=$13,875

Now we can rebate $2,000.00 from $13,875.00

$13,875-$2,000=$11,875

Jackie and Aryan should pay the Provincial Land Transfer Tax in the amount of $11,875.00.

As far as the property, Jackie and Aryan are buying is located in Toronto, they must also pay the Municipal Land Transfer Tax.

The formula for the municipal land transfer tax is the same as for the provincial. Respectively, the tax amount will be $13,875.00.  The rebate for the municipal tax is $4,475.00, as we mentioned earlier. A half if that amount will be $2,237.50.

$13,875.00 -$ 2,237 = $11,637.50

The Provincial Land Transfer Tax for Mr. Devi and Mrs. Smith is $11,875.00

The Municipal Land Transfer Tax is $11,637.50

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