HST Issues for Builders

September 2013

The legalities of the HST are fortunately fairly straight forward.

The first issue relates to whether or not the HST is included in the contract purchase price or in addition to the price.

Most builders appear to be preparing to quote a selling price inclusive of HST.  The only thing which you must keep in mind is that if your contract is silent on the issue of HST, HST is deemed to be included.  If you want your purchaser to pay the HST in addition to the base purchase price, your contract needs to clearly provide for that outcome in its wording.

Most builders are adding a Schedule to their offers to deal with the HST issue and there are currently at least two schedules in circulation that can be used for this purpose depending upon whether HST is included in the price or in addition to the price.  If you need any assistance with preparing an appropriate schedule for your offers, please do not hesitate to contact us.

Remember that over the next few months many homes will be impacted by the HST transition rules.  If the house which you are constructing is 90% complete by July 1st, 2010, you can transfer the legal title after that date without having to worry about HST rules applying to your transaction.  If your house is not at least 90% complete by July 1st, 2010, the transition rules will apply.  Again, from a legal point of view, it is simply important to ensure that you have made clear in your contract whether HST is in addition to the purchase price or included in the purchase price.  Your primary headache will be to ensure that you have priced the home properly to recover the tax payable based upon the transition rules.

Be cautious about attempting to “beat the tax” by planning to transfer legal title before the house is fully complete.  Most buyers will be unable to obtain their mortgage advances unless the house is substantially complete as defined in the Construction Lien Act (i.e. less than 4% of the value of the contract work remaining to be done).  Even a buyer who is paying cash would not be wise to close without taking into account the implications of losing his or her new home buyer exemption from the Construction Lien Act and if the buyer takes that chance, the buyer would have to hold back for liens as provided in the legislation which will of course impact the builder’s position.

Be cautious as well about trying to “beat the tax” by giving your purchaser possession of the home before it is complete.  I don’t believe that early possession is a practical likelihood but as things stand, if you are giving possession early to avoid the implications of the tax, the house should, in that case, still be ready for occupancy.  You would likely be obliged in an audit situation to prove that the house was 90% or more complete.  It would be a good ideal to have pictures taken at the time that possession is turned over but if those pictures show an absence of basic amenities, it may be difficult to prove your case and you could be responsible for paying the HST.  You should also question whether or not it would be practical in most cases to chase after the purchaser for the HST funds after the deal is closed and legal title transferred.  The proposition is rife with other concerns of course, not the least of which is whether or not there might be insurance difficulties in the event of a loss of property value or worse yet, if a liability claim is made against the property owner.  It would be best to just avoid giving early possession.

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Brian's practice offers dependable, knowledgeable, and comprehensive services relating to residential and commercial real estate transactions, will planning, estate administration and corporate/commercial business law issues. More →