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GST IN REAL ESTATE AND GST DEFERRAL
GST, or goods and sales tax (in Canada) is a sales tax paid by the end consumer. You will pay this tax when you purchase a brand new residential home, as an end consumer who intends to live in it. The builder business involved in the development of the home will pay the GST to all involved trades and retailers pass this GST to you as an end consumer.
By purchasing a rental property, you are, in effect, not the actual end consumer and you get to pass this GST expense to your clients. This would require you to set up your GST with CRA, you can only defer your GST if you have a GST account here is the link:
Here is a summary version of when you get to defer your GST:
- Need to register for GST before making a purchase.
- File GST Form 60 before the last day of the month following the purchase.
- Your purchased property needs to be rented for the short term for more than 60% in a year.
- You are required to charge your quests GST on their stay.
The benefit of deferring GST:
When buying a short-term rental property you might be able to defer your GST on the purchase price! The Realtor.ca MLS listing price includes GST so ask your realtor for a GST deferral price on your potential purchase.
When deferring GST make sense:
Deferring the GST is possible when you purchase to rent out your property on a nightly or short-term basis for more than 90% of the year. If you are planning to use the property for more than 50% as a personal vacation property, you are not eligible to claim an ITC for any of the GST paid or payable on the purchase. If you are planning to use the property as a personal vacation property for less than 50%. The ITCs are proportionally adjusted corresponding to your increase and decrease in personal use.
The GST could be deferred for as long as you continue the short-term rental. It will be determined each year based on the proportion of the personal use of the unit.
