GST is paid on most retail purchases without a second thought. However, when acting for a client who is buying or selling real property, what steps should you, as a real estate agent, take regarding GST?

Whether you are acting for a buyer or seller, careful guidance and managing how GST is dealt with within the contract of purchase and sale is essential to protecting you and your clients.

Is GST applicable to the sale?

Buyers and sellers often mistakenly believe that used residential real estate is automatically GST exempt. While used residential property is generally exempt from GST, there are situations where exceptions may apply, including if the property has been used for short-term rentals, has been substantially renovated, or where input tax credits have been claimed.

In advising your clients regarding GST, avoid giving tax advice or making declarative statements like “Don’t worry, GST doesn’t apply” or “Don’t worry, GST has already been paid.” Instead, look for and be generally aware of common facts or uses that may give rise to GST liability, including a vacant lot, operating farm, commercial property, substantially renovated or newly constructed property, and presale assignments. If there is any question regarding the applicability of GST to the transaction:

1. recommend that your client seek professional advice from an accountant or tax lawyer as to the applicability of GST and document your recommendation in writing, ideally in an email or text message to your client; and
2. consider including a GST subject condition in favour of your client allowing them to obtain professional tax advice before the contract becomes binding.

If GST Is applicable, who pays for it?

(a) Applicable GST is included by default in the purchase price in residential deals

BCREA’s standard form Contract of Purchase and Sale-Residential now clearly states the default position: any applicable GST is included in the purchase price unless explicitly agreed otherwise in writing.

Under this default position, the buyer will know their out-of-pocket costs up front when making an offer, and the seller will be responsible for remitting any applicable GST to the Canada Revenue Agency out of the proceeds of sale. Real estate agents should advise their clients on the impact of this default position as it relates to the obligation to pay GST, and be aware that any changes to the default position should be negotiated and explicitly written in the contract.

(b) Changing the default position

If the parties to the transaction agree that the buyer will pay GST on top of the agreed purchase price, the default language in the Contract of Purchase and Sale-Residential should not be relied upon. Rather, a term should be included in the contract to reflect the parties’ agreement with respect to GST that is different from the default position. For more information, see suggested clauses in BCFSA’s Knowledge Base.

How to advise your client

 Advising a seller:

• Discuss the terms of the contract with your seller client, including the default position taken in the Contract of Purchase and Sale-Residential with respect to the payment of GST.
• Recommend to your client that they obtain professional tax advice regarding the applicability of GST to the transaction and document that recommendation in writing. Consider negotiating a subject condition in favour of your client that would allow them to obtain tax advice before a contract becomes firm.
• If a seller wants to negotiate a change to the default position with respect to GST, negotiate a change in that position with any offer or counteroffer using explicit language within the contract. Consider reminding your client that buyers will typically evaluate any offer or counteroffer based on their total financial outlay inclusive of any applicable GST.

 Advising a buyer:

• Discuss the terms of the contract with your buyer client, including the default position taken in the Contract of Purchase and Sale-Residential with respect to the payment of GST.
• Be on the lookout for any changes to the default position on GST. Advise your client of any changes to the default position and consider recommending that they obtain professional tax advice regarding the applicability of GST where appropriate.
• Consider negotiating a subject condition in favour of your client that would allow them to obtain tax advice before a contract becomes firm.
• Consider advising your client to speak with their lender or mortgage broker with respect to financing, including the potential payment of GST where applicable.

Key takeaways for your practice

Real estate licensees are licensed to provide real estate services, not to provide tax or accounting advice. Crossing the line from recommending tax advice to providing it can result in legal liability and professional consequences. Consider the following key takeaways when dealing with GST issues:

1. Know the default position: BCREA’s standard form residential contract says GST, if applicable, is included in the purchase price and payable by the seller.
2. Be aware of changes to the default position: Carefully review every offer and counteroffer to determine whether the default position has been changed, and do not assume that the default position is always taken.
3. If changing the default position, use approved clauses: If changing the default position in respect to GST, any such changes should be explicitly written in the contract, ideally using BCFSA-approved clauses.
4. Stay in your lane: Identify GST red flags (e.g. new builds, bare land, short-term rentals, commercial use, etc.) but avoid dispensing tax advice. Recommend clients obtain professional advice from an accountant or tax lawyer regarding GST liability early in the sale process, and negotiate and include appropriate GST clauses and subject conditions where applicable.
5. Document everything: Always document in writing (e.g. email, text messages, etc.) your discussions with your client regarding the terms of the contract, your recommendations and advice, and your client’s instructions to you.

For more information regarding GST, see Jude Chow’s “Navigating Change: Essential Takeaways on the Updated Standard Form Contract of Purchase and Sale #578” in BCREA’s Legally Speaking column.