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Protect your clients from CRA issues with real estate HST/GST

Canada Revenue Agency is getting tougher on HST/GST non-compliance in real estate. Gain the in-depth knowledge you need about the latest regulations to maintain best practices and help advise your clients.

Up-to-date knowledge about the rules and regulations of real estate tax is important for avoiding fines and guiding your clients toward better practices. As a CPA, your insights and expertise can make a significant impact.

NEW HOMES AND UNREPORTED HST/GST

Did you know that one of the five areas identified by the CRA as high-risk for non-compliance is unreported HST/GST? For the real estate sector in particular, this applies to the sale of new or substantially renovated homes.

Calculating the tax owed on a new or substantially renovated property can be complicated, and figuring out whether the buyer is entitled to tax rebates depends on a variety of factors. Your CPA expertise can ensure consumers take advantage of the rebates they're entitled to and avoid the costs of non-compliance.

According to the CRA, you must work from the HST/GST rate in effect and consider which province your client is operating in, which can cause fluctuations in rate.

REBATES AND FALSE CLAIMS

When buyers of a newly built or substantially renovated home use the property as a primary residence for themselves or eligible family members, they can apply for a New Housing Rebate on the HST/GST they paid. If they are not going to be living there, the rebate doesn’t apply.

Fraud as well as false or mistaken claims can be an issue on this front. The CRA pursues any suspected false claims and will charge interest and a penalty on top of the reclaimed rebate. Some infractions are likely due to unfamiliarity with the rules; however, in Ontario alone, the CRA went after 12,866 suspected false claims last year and collected a staggering $168.5 million from homeowners.

Take the example of an Ontario couple who purchased a newly built home, received a new housing HST/GST rebate and re-listed it 11 days later. They claimed that changed circumstances forced the sale and petitioned to keep the rebate.

In this case, the CRA denied their petition, stating that the couple never intended to live in the house because they resold too quickly and were employed far from the home. The courts agreed with the CRA and added that utility bills showed negligible use.

ACCURATE HST/GST SELF-ASSESSMENT

New multi-unit condo and apartment buildings are going up in unprecedented numbers, and major urban areas in Canada have a very competitive housing market. But do all builders have the accounting savvy to make sound HST/GST calculations on the property they’re selling?

In the rush to close deals, builders may not mention commodity tax at all to buyers – but that doesn’t mean that the purchase is tax-free.

“If it’s too good to be true, it usually is,” says MNP tax advisor Jeff Harrison, CPA, CMA. Buyers registered for HST/GST must self-assess and remit HST/GST to the CRA themselves, even if builders do not disclose information about it.

Similar complications apply to landlords who buy newly built residential units, lease them as primary homes and try to claim a New Residential Rental Property Rebate (NRRPR) on the HST/GST paid. A different form must be used for purchase of a single suite than for multiple apartments within a complex.

When applications are incomplete or contain errors, the CRA will reject them, and if the applicant files again, they may run the risk of missing the two-year post-sale deadline. Timing is of the essence.

To learn more about the complex rules surrounding HST/GST and how to help your clients take advantage of the right rebates, register for one of these professional development opportunities:

In-Depth HST/GST Course
In-Person Course | CPD: 34 hours
May 28 – June 2, 2017 | Niagara-on-the-Lake, ON

Specialized HST/GST Course: Real Property
Online Learning | CPD: 12 hours