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[BUYING AND SELLING REAL ESTATE IN CANADA - ONTARIO]
home where the buyer is not purchasing a new build.) However, HST is payable for the purchase of new homes and substantially renovated homes, where 90% or more of the interior has been renovated and was inhabited for less than one year. Since May 7, 2022, HST is also applicable to all assignments of agreements of purchase and sale for new houses and condominium units and is chargeable by the assignor and payable by an assignee on the portion of the assignment purchase price representing the assignor's profit, over and above what the assignor agreed to pay the vendor but excluding the reimbursement of deposits by the assignee to the assignor. HST applies to most commercial transactions, subject to some exceptions. The purchase agreement stipulates whether HST is included in the purchase price or not. If the buyer is an HST registrant, the buyer may self-assess, claim input tax credits and remit any HST owing to the Canada Revenue Agency (" CRA ") directly. The seller will require indemnity from the buyer on closing to protect the seller from the buyer's failure to remit the tax. The seller should confirm the buyer's HST registration number with CRA prior to closing. XII. RESIDENCY STATUS OF THE SELLER Residential property that is designated as a primary residence of seller who is not a non- resident of Canada is usually exempt from income taxes with CRA. Section 116 of the Income Tax Act imposes liability on both the seller and buyer during the property transaction. The seller is responsible for potential tax liability for profits earned from selling the property. This section imposes the same liability on the buyer if a non-resident, as defined in the Income Tax Act , fails to remit the tax to CRA.
The buyer is obligated under the Income Tax Act to make reasonable inquiry as to the residency of the seller. A statutory declaration from the seller confirming the seller is not a non-resident is obtained on closing and delivered to the buyer. This is usually sufficient to protect the buyer from tax liability. However, if the seller has signed the documents outside of Canada or provides an address outside of Canada for service, further inquiries must be made, or the buyer may become liable for the tax amount owing. If the buyer has actual notice that the seller is a non-resident, the buyer cannot rely on the statutory declaration. If the seller is a non-resident, the seller must provide a "certificate of compliance" (CRA form T2062, often referred to as a "compliance certificate or "s. 116 certificate") on closing certifying that all tax has been paid to CRA or security has been given for payment. If the certificate of compliance is not available on the closing date, the buyer's lawyer must withhold in trust from the sale price the maximum amount of the tax liability for which the buyer could be responsible for if the seller failed to pay the tax (currently 25% of the sale price) until receipt of the certificate of compliance is received. In practice, if a large tax amount is owing, the seller may need to use the holdback to pay the tax liability and will apply to CRA for a certificate of compliance. When CRA sends a tax statement/letter to the seller's lawyer or accountant stating that upon its receipt of the unpaid tax it will issue a certificate of compliance, the buyer's lawyer will issue payment to CRA of the unpaid tax from the holdback. The seller's lawyer usually undertakes to deliver the certificate of compliance upon its receipt of same. XIII. CLOSING COSTS In addition to legal fees and disbursements and title insurance policy premiums paid by the buyer, purchase transactions in Ontario are
ILN Real Estate Group – Buying and Selling Real Estate Series
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