When is the sale of vacant land by an individual subject to HST?
The sale of vacant land can be taxable or exempt for purposes of HST under the Excise Tax Act. Generally, vacant land sold by individuals is exempt, subject to certain exceptions.
Exempt sales of vacant land typically include (but is not limited to):
- personal use land sold by an individual or personal trust;
- land previously used in a farming operation acquired for personal use and enjoyment by someone related to the farmer or kept by the retired farmer for their own personal use and enjoyment;
- a parcel of land created from subdividing another parcel of land and sold to a related person for their personal use and enjoyment;
- a parcel of land created from subdividing another parcel of land into two parts, where the original parcel was not previously subdivided by the individual.
When is HST Applicable?
There are many situations where HST would be applicable to the sale of vacant land:
- If the land was used primarily in a business carried on by the individual with a reasonable expectation of profit immediately before the sale, then HST must be charged on the sale. This begs the question, how does one determine if the land is used for business? Appendix A of the CRA’s GST Memorandum 19.5 – Land and Associated Real Property provides guidelines for determining if the land is used primarily in a business. Appendix A states that “capital real property must be used, or held for use, for one or more purposes at all times. If there is evidence of business use and personal use, the vendor must determine which is the primary use of the property.
- If the sale of the land was made in the course of a business of the individual, then GST/HST must be charged on the sale. As in most factual cases, the CRA will consider a number of factors, including the amount of time and resources spent by the individual, the frequency or regularity of similar transactions, the taxpayer’s intention and the taxpayer’s training.
- The sale of vacant land will be taxable if the land has been severed into more than two parts and is being sold to arm’s length individuals.
Reporting the GST/HST on the sale
An HST registrant selling a taxable parcel of land will normally collect and remit the GST/HST to the CRA using Form GST34. Non-registrant sellers will collect the GST/HST and remit it to the CRA using Form GST62.
Non-registrant sellers are not required to register for GST/HST, and the amount of tax collected must be remitted by the end of the month following the date of the sale.
IMPORTANT NOTE: Where the purchaser is a registrant, the purchaser is required to collect, which results in the purchaser self-assessing the tax and remitting it to the CRA on their HST return for the period in which the sale occurred. It may be the case that the purchaser would be entitled to claim an ITC to offset the HST.
As in most similar situations, the seller should confirm that the purchaser’s HST number is valid prior to allowing the purchaser to self-assess and remit the HST.
Finally, the seller should require the purchaser to confirm that it is a registrant.
Ummat Tax Law PC
5500 North Service Road
Burlington, ON L7L 6W6