Is GST/HST charged on residential, rental or development property sold with a business?

When a business is sold with real estate, the GST/HST result depends in part on whether the Excise Tax Act s.167 election is available and on what kind of property the real estate is. The election has an exception for real property. What counts as residential, rental or development property then comes from other parts of the Act and the CRA’s guidance. This page names the rules and does not decide any particular sale.

The election and its real-property exception

Section 167(1) of the Excise Tax Act applies where a supplier supplies a business or part of a business and, under the agreement, the recipient is acquiring ownership, possession or use of all or substantially all of the property that can reasonably be regarded as necessary to carry on the business or part as a business. Under s.167(1)(b), the supplier and recipient may then make a joint election in prescribed form, except where the supplier is a registrant and the recipient is not. When an election is made and, if the recipient is a registrant, filed by the day s.167(1.1) sets or a later day the Minister determines on application, no tax is payable on the supplies under the agreement other than a taxable supply of a service to be rendered by the supplier, a taxable supply of property by lease, licence or similar arrangement, and, under s.167(1.1)(a)(iii), a taxable supply by way of sale of real property where the recipient is not a registrant. The election also has conditions, covered in the guide to GST/HST on a business sale.

Residential and rental property

CRA Memorandum 19.2 says that where a residential unit is in a residential complex and the tenant leases it for residential purposes for continuous possession or use of one month or more, the supply of the leased premises is exempt under paragraph 6(a) of Part I of Schedule V. The Memorandum also gives an example of a building a lawyer used mostly as a residence and partly as an office. It says the eventual sale would be an exempt sale of a residential complex, provided the lawyer has not taken input tax credits on improvements to the building. The s.123(1) definition of residential complex, discussed in the residential complex entry, excludes a hotel, motel, inn, boarding house, lodging house or similar premises where the building is not described in paragraph (c) of the definition and all or substantially all of the leases, licences or similar arrangements for its residential units provide, or are expected to provide, for periods of continuous possession or use of less than sixty days.

Development property and builders

Section 123(1) of the Excise Tax Act defines a builder of a residential complex in several paragraphs and then excludes some persons, including an individual who builds, renovates or acquires otherwise than in the course of a business or an adventure or concern in the nature of trade. One case, paragraph (d), is a person who acquires an interest in the complex before it has been occupied by an individual as a place of residence or lodging (or, for a condominium, before it is registered) for the primary purpose of selling it or of leasing it to persons other than individuals acquiring it otherwise than in the course of a business or an adventure or concern in the nature of trade. Being a builder is a status to check against the definition, not a result. Ask an accountant whether the sale of the particular property is taxable or exempt.