Tuesday, June 19, 2012

Tax Matters - Intended for (Ontario) Canada Only

This post is targeted to Ontarians and affects purchases within the Province of Ontario only. Those in other jurisdictions should consult with officials within their own regions to determine any tax consequences which might affect their real estate purchase.

In Ontario, we generally need to be concerned with the following:

Harmonized Sales Tax (HST) – On purchases of commercial properties (new or resale) the sale is generally deemed to be subject to HST (currently at 13%). However, if the Buyer is an HST registrant prior to closing, they will not need to pay the HST and instead are required to provide the appropriate warranties/file the prescribed forms upon completion. This is generally a closing process carried out by your lawyer, but it is generally a best practice, to verify this matter prior to finalizing an Agreement to Purchase. If for some reason the sale of the property is not subject to HST, Sellers should agree to certify this on or before closing and your Agreement to Purchase should reflect this fact. As a final note, if a Buyer is not registered for HST, the amount is due and payable at closing – something to be mindful of for cashflow reasons.

Other HST implications – Beyond the actual purchase, HST will apply to chattel/equipment values, professional service fees (ie. real estate, legal, surveying costs etc). On chattels/equipment, it should be noted that the HST clause in a standard ‘Agreement of Purchase and Sale' states that “HST on chattels, if applicable is not included in the purchase price”. - meaning any tax liability is above and beyond the purchase price.

Land Transfer Tax – Commercial property sales are taxed by the Province of Ontario at varying rates depending on the value of the purchase price. Contact your lawyer to verify the applicable amount, at the time of estimating all other relevant closing costs. Again, a prudent move, based on cashflow considerations.

We advise clients to consult with both their lawyers and accountants with respect to the above matters, to ensure they understand both the requirements and the related costs.

As always, consult an experienced commercial broker in your market to assist you in the purchase of commercial properties.

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