March 12th - 2009

Updated GST guide available on REALTOR Link®

Everything you need to know about the Goods and Services Tax (GST) and how it applies to REALTORS® is contained in the recently updated REALTORS® guide to GST/HST/QST.

Everything you need to know about the Goods and Services Tax (GST) and how it applies to REALTORS® is contained in the recently updated REALTORS® guide to GST/HST/QST.


The guide was originally prepared for CREA by a National Task Force of Real Estate Industry Leaders with the assistance of two chartered accountancy firms. It has been updated by a chartered accountancy firm to March 15, 2008.


This version includes an updated GST Guide for Ontario, and details on application of both the Quebec Sales Tax (QST) and the Harmonized Sales Tax (HST) in Atlantic Canada. The guide is designed to help REALTORS® to understand the effect of the GST, HST or QST on the real estate industry, its clients and customers.


In Ontario, REALTORS® are required to collect GST on their real estate commission revenues but are also entitled to claim input tax credits for any GST paid on their purchases of taxable goods and services.


Although REALTORS® may be providing services in respect of real estate transactions that are exempt from GST, such as the sale of resale housing, their services will be subject to GST. GST also applies to most other costs relating to real estate transactions including appraisal fees, legal fees and inspection fees. However, mortgage brokerage fees and commissions are exempt from GST. Mortgage brokers are therefore not required to charge tax on such fees and are unable to claim input tax credits for tax paid on purchases connected with this business.


What is an Input Tax Credit?
A basic principle of the GST is that a registered person engaged in making taxable (including zero-rated) supplies is generally entitled to receive a credit for the tax paid on purchases used in connection with the business. This recoverable tax is referred to as an input tax credit.


In order to claim an input tax credit, a registrant must have appropriate supporting documentation such as invoices, cash register receipts, formal written contracts (including contracts for periodic lease payments), credit card receipts or any valid document issued or signed by a registrant concerning a transaction on which GST is paid or payable. Most REALTORS® are engaged exclusively in making taxable (including zero-rated) supplies and are therefore entitled to recover all of the GST they incur, subject to some general restrictions detailed in the guide. The following are a few examples of expenses incurred by REALTORS® subject to GST:

  • advertising
  • automobile purchase or expenses
  • commercial rent
  • gifts
  • legal and accounting fees
  • meals and entertainment
  • office equipment and supplies
  • payments to a co-operating broker
  • postage
  • telephone and fax charges
  • travelling expenses

The guide also indicates certain Input Tax Credit restrictions. For example, a REALTOR® may claim an input tax credit for the GST/HST incurred on meals and entertainment expenses. However, at year-end the REALTOR® must repay 50% of the GST incurred on such expenditures to the extent such expenditures are restricted for Income Tax purposes. Many businesses simply claim 50% of the GST/HST paid when the expenditure is made rather than claiming the full amount and adjusting it at year-end.


Other restrictions include personal expenditures and club memberships for dining, recreation or sports facilities. Input tax credits on the purchase or lease of a passenger vehicle are also restricted in some circumstances.


Understanding how GST rules are applied can be very complex in some situations. The CREA guide cautions REALTORS® to be as knowledgeable as possible about the principle application aspects of the GST, but to also exercise extreme caution in advising clients as to the application of GST in any complex or unusual transaction. The REALTORS® Guide to GST/HST/QST is available at www.realtorlink.ca.

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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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