Determining whether you need to pay Harmonized Sales Tax (HST) during a real estate transaction can be complex. Various rebates, exceptions, and factors come into play, particularly when selling a vacant lot.
When Is HST Applicable?
You will need to pay HST on the sale of vacant land in these scenarios:
– The land is capital property primarily used for business purposes.
– The sale occurs as part of a business activity.
– The land is created by subdividing a larger parcel into more than two parts.
When Is the Sale HST-Free?
Most sales of vacant land by individuals are exempt from HST, including:
– The sale of land kept for personal use.
– The sale to a relative (or a former spouse or common-law partner) for personal use of a subdivided parcel.
When corporations sell land, HST generally applies, as most exceptions do not apply if the sale is primarily for business purposes.
Unique Scenarios for HST on Vacant Land
If you inherit land that was not used for commercial purposes and wish to sell it to a developer, you likely do not need to charge HST. Since the land isn’t capital property and you’re not selling it as part of a business venture, it wouldn’t attract HST.
If you own land and plan to subdivide it for separate sales, you won’t need to charge HST if you’re dividing it into only two parts. However, if you subdivide into more than two parts, HST becomes applicable unless you’re selling part of it to a relative. If you originally intended to sell the land as part of a business venture, you may choose to charge tax on the sale, adding to the complexity with potential rebate options.
Numerous other scenarios may affect whether a sale is exempt or taxable. It’s advisable to consult a lawyer to clarify your obligations and ensure compliance with HST regulations.