Effect of the Harmonized Sales Tax on the Value of the Consideration

Bulletin LTT 1-2010
Published: June 2010
Content last reviewed: June 2010
ISBN: 978-1-4435-3836-7 (Print), 978-1-4435-3838-1 (PDF), 978-1-4435-3837-4 (HTML)

  • This bulletin provides information on the effect of the Harmonized Sales Tax (HST) on the calculation of the value of the consideration for a transfer of land.
  • This bulletin provides general information. It is not exhaustive and should not be considered as a substitute for the Land Transfer Tax Act and its regulations.

General

HST

The HST is a tax administered by the federal government which applies to certain goods and services in accordance with the provisions of the Excise Tax Act. The provincial portion of the HST is 8 per cent and the federal portion is 5 per cent, for a combined HST rate of 13 per cent.

The Effect of HST on the Value of the Consideration

Value of the Consideration

The value of the consideration, as defined in subsection 1(1) of the Land Transfer Tax Act, is the base upon which land transfer tax is calculated.

HST and the Value of the Consideration

When HST applies to the purchase of land or an interest in land, the value of the consideration does not include the amount of HST paid on the purchase price. Accordingly, land transfer tax is not exigible on the HST paid.

The Effect of the New Housing Rebates on the Value of the Consideration

Assigning the Rebates

Some purchase agreements between a new home purchaser and a vendor will provide that the purchaser remit to the vendor the HST along with the assignment of one or more of the New Housing Rebates. If the HST is remitted net of the applicable New Housing Rebates, and the purchaser assigns those rebates to the vendor, then the value of the rebates does not form part of the value of the consideration. If, however, the HST is remitted in full and any applicable New Housing Rebates are assigned, then the amount of the rebates do form part of the value of the consideration. Additional details about these two types of transactions are set out on the next two pages of this bulletin.

New Housing Rebates

Three Rebate Claims

In certain real estate transfers, a purchaser may be entitled to claim one or more of these New Housing Rebates:

  • a GST/HST New Housing Rebate in respect of the federal portion of the HST
  • an Ontario New Housing Rebate in respect of the provincial portion of the HST, and
  • an RST Transitional New Housing Rebate.

For the purpose of this bulletin, we refer to these three rebates collectively as "New Housing Rebates."

Information relating to the application of these rebates is available on the Canada Revenue Agency's website at www.cra-arc.gc.ca/gsthsttech.

Federal New Housing Rebate

The GST/HST New Housing Rebate is available in respect of the federal part of the HST paid on certain purchases of a newly constructed or substantially renovated house. For more information on this rebate, please see the federal publication GST/HST New Housing Rebate.

Ontario New Housing Rebate

The Ontario New Housing Rebate is available in respect of the provincial part of the HST paid on certain purchases of a newly constructed or substantially renovated house.

RST Transitional New Housing Rebate

In addition, the RST Transitional New Housing Rebate is available to individuals who purchase a newly constructed or substantially renovated house where the construction or substantial renovation of the house straddles the July 1, 2010 HST implementation date and the HST is payable on the purchase (i.e., the sale of the house is not grandparented under the HST transitional rules).

More information can also be found in the federal publication: Harmonized Sales Tax for Ontario Questions and Answers on Housing Rebates and Transitional Rules for Housing and Other Real Property Situated in Ontario.

When the Value of the New Housing Rebates is Not Taxable

Summary

In certain situations, when a purchaser buys a new home, the purchaser qualifies for one or more of the New Housing Rebates. If the purchaser assigns any of the rebates to the vendor, and pays to the vendor the difference between the 13 per cent HST and the rebates, then the value of the rebates do not form part of the value of the consideration.

Situations Where the Value of the New Housing Rebates is not Taxable

In most situations, the purchase agreement provides that the purchase price is inclusive of net HST. Net HST is the 13 per cent HST payable, less any rebate to which the purchaser is entitled. The agreement also provides that the purchaser will assign any rebate to which the purchaser is entitled to the vendor. The vendor then submits the net HST collected, and the assignment of the rebate to the federal government. In this way, the vendor acts as a conduit for the federal government in order to instantaneously provide the purchaser with the rebate that the purchaser would otherwise receive at a later date from the federal government; the vendor does not keep the value of the rebate for himself/herself.

When the Value of the New Housing Rebates is Taxable

Summary

In certain situations, when a purchaser buys a new home, the purchaser qualifies for one or more of the New Housing Rebates. If the purchaser assigns any of the rebates to the vendor, and pays to the vendor the full 13 per cent HST, then the value of the rebates form part of the value of the consideration.

Situations Where the Value of the New Housing Rebates is Taxable

In some situations, the purchase agreement provides that the purchase price is inclusive of the full 13 per cent HST. The agreement also provides that the purchaser will assign any New Housing Rebates to which the purchaser is entitled to the vendor. The vendor collects the full 13 per cent HST from the purchaser as well as the assignment of the rebates. The vendor then submits the net HST and the assignment of the rebates to the federal government, and retains the difference between the 13 per cent HST paid, and the net HST submitted to the federal government. This figure is equal to the value of the rebates. In this situation the vendor has benefited by collecting the full 13 per cent HST and only remitting HST net of the rebates to the federal government. Consequently, the value of the consideration would include the purchase price net of HST plus an amount equal to the amount of the rebates which the vendor received from the purchaser but did not remit.

Additional Information

If this bulletin does not completely address your particular situation, refer to the Act and related regulations, visit our website at ontario.ca/finance or contact:

Ministry of Finance
Audit Branch
33 King Street West
Oshawa ON  L1H 8H9

  • 1 866 ONT-TAXS (1 866 668-8297)
  • Fax: 905 433-5770
  • 1 800 263-7776 for teletypewriter (TTY)

For more information about the federally administered Harmonized Sales Tax and the New Housing Rebates, please visit the Canada Revenue Agency website at cra.gc.ca/gsthst.

Or call the Canada Revenue Agency information line at:

  • English: 1 800 959-8287
  • French: 1 800 959-8296
Page: 3014  |