Is VAT payable on the purchase of real estate and if so, can it be recovered?
A 5% federal goods and services tax (GST) generally applies to the purchase of Canadian real property. Certain provinces have harmonized their sales tax regimes with the federal GST. A purchase of real property in these provinces would generally be subject to additional tax at rates varying from 8–10%, depending on the province. One province, Quebec, has harmonized in a different manner, where instead of having the additional tax levied under the federal GST legislation, it levies Quebec sales tax under Quebec legislation that is substantially similar to the federal GST.
Certain sales of real estate are exempt from GST, most notably sales of used residential real estate.
Generally, the purchaser can recover GST payable at the time of purchase (if any) by claiming an equivalent input tax credit (ITC) in its GST return, provided that the purchaser is registered for GST purposes and acquires the property in the course of a commercial activity. In many cases involving commercial real property the purchaser can self-assess, where the purchaser does not pay GST to the seller on purchase but instead reports the GST and claims an ITC in the relevant GST return, with the offset of those amounts resulting in no GST paid in respect of the purchase. Otherwise, the purchaser must pay the GST at the time of purchase, and subsequently claim the offsetting ITC as a credit against its overall GST liability when filing its relevant GST return. GST returns must be filed monthly, quarterly, or annually, depending on the revenue of the purchaser’s business.