1) You are registered for the GST/HST and the use or supply of the property in your commercial activities will be 50% or less, use the GST/HST Return For Acquisition of Real Property (Form GST60). Do not use this return if you are registered for the GST/HST and the taxable real property will be for use or supply primarily (more than 50%) in your commercial activities. Use your regular GST/HST return (Form GST34) to report and pay the tax.
2) You are not registered for GST/HST and you acquired the property from a non-resident, or from a person who is deemed to be resident only because of the person’s permanent establishment in Canada.
If you are not sure if this applies to you and your situation, contact Canada Revenue Agency or talk to your accountant – your lawyer might not be the right person to answer this correctly!
Generally, for two commercial businesses, both registered with GST and the transaction involves a commercial property .. this is like any other sale transaction: The purchaser pays the tax and seller collects the tax, and remits it to the Government. The purchaser can deduct this tax against other GST taxes they collected as the seller in their own business.
PREVIOUSLY … when a lawyer would do all the paperwork, it was often common to see a clause in the purchase/sale agreement to forego the collection and remittance of the GST on the transaction – or, try to word the agreement that there was no GST due at all. The theory being – one pays, other collects – it washes out. But, Canada Revenue Agency (CRA) did not like that. They want you to report the acquisition of real property because (hypothetically based on no research or facts) probably, one day CRA will tie in these purchases with the sellers info and make sure everybody is reporting everything okay.
CURRENTLY … CRA actually recognizes that this can be a big burden to both the buyers and seller. For instance, if the transaction is a property worth $1,000,000 selling price, the seller may collect 5% or $50,000 GST but, after the lawyer gets through with the transaction, mortgagors are paid off, utilities and other expenses are covered .. there may not be enough to remit to CRA (or the seller just decides not to remit). Likewise with the purchaser, it is additional cash that may not be available or included in pre-approved mortgage or loan financing, and is an extra cash burden to a business or person trying to well, participate in the economy.
CRA now allows that the seller (vendor) and buyer (purchaser) can elect to have the PURCHASER file the required forms and PAY the GST directly to CRA by recording this as a collection (Line 205 on your return called “GST/HST due on acquisition of taxable property and as a GST Registrant deduct the GST Input Tax Credit. This way, there is no real financial burden to either party and it is a wash on the purchaser’s next GST Return filed.
A Situation That I Have Come Across Recently
An interesting thing happened that I am now aware of, that I would like to share. This isn’t a real transaction, or have an specific direct reference to any of my clients and could even be a fictitious story altogether to illustrate a point! (I’m not tellin’)
* An offer to purchase was made and there was an acceptance in writing, stating that the ‘Purchase Price’ will be $1,000,000 plus applicable taxes
* The lawyers prepared a “Certificate” and made it part of the purchase/sale agreement, and was signed by a notary public, and the corporations involved. It went something like this:
Re: Sale of property
I, the purchaser of the property hereby certified on behalf of the Purchaser and not in my personal capacity that:
1) THAT the Purchaser is registered with Canada Revenue Agency under the Excise Tax Act for the purposes of collection and remitting Goods and Services Tax (GST)
2) THAT the Purchaser’s registration number for GST purposes is RT-xxxxx-xxxx-0001
3) THAT the Purchaser undertakes to make all filings under the Excise Tax Act in respect of the purchase and sale transaction and to be responsible for any GST to be remitted thereunder as a result of the purchase and sale transaction
4) THAT in consideration of the conveyance of the Property and for other good and valuable consideration, the Purchaser hereby indemnifies and holds the Vendor harmless in respect of any assessment against the Vendor arising out of the failure of the Purchaser to report and/or remit GST, together with all interest, costs, and penalties in respect thereof, as may be required in respect of the above noted purchase and sale transaction.
Now .. I showed this document to an acquaintance who works at Canada Revenue Agency and I not only did he laugh and claimed that would not hold up with Canada Revenue Agency GST Rulings, but in fact some inexperienced non-tax lawyer probably drafted that letter up and passed it in a newsletter and now lawyers all across Canada are using a variation of that same form! Needless to say, he suggested that I warn future buyer/sellers of real property to take greater care with respect to the GST transaction and other compliance issues.
This Is What Happened
The purchaser filed its GST Return with the additional figures for lines 205 to report the collection of the GST on the transaction (self-assess with respect of the GST thereby relieving the Vendor of any obligation to collect and remit GST on the sale of the Property) and then included the GST amount with other GST ITC’s paid on line 105, such as follows:
Canada Revenue Agency, after receiving the GST Return, requested documentation:
a) Calculation (proof) of the $1,000,000 value on this self-assessment
b) A copy of the vendor invoice with its GST Registration number on it.
Nowhere on the sale documents did it mention the other Corporation’s GST Registration number, and to make matters worse, the seller left the country and moved back to his homeland in Europe and not available to be reached. The purchaser, decided (NEVER DO THIS!!) to ignore CRA’s requests for information.
If you recall – the GST Guidelines for situations state if you are registered for the GST/HST and the use or supply of the property will be for your commercial activities, you are to pay GST. That was not the problem.
The problem was with respect to the “Invoice Requirements” of CRA that exist before you can claim a GST ITC.
You have to give customers who are GST/HST registrants specific information on the invoices, receipts, contracts, or other business papers that you use when you provide taxable goods and services. This information lets them support their claims for input tax credit (ITCs) or rebates for the GST/HST you charged. Similarly, when you make business purchases, the invoices from your suppliers will substantiate your claims for ITCs or rebates.
When there is no invoice available, see Exception to invoice requirements to verify what type of information you need to claim an ITC. If your customers ask you for an invoice or receipt to claim an ITC, depending on the amount of the sale, you are required by law to give them the following information:
Information required Total sale under $30 Total sale $30 to $149.99 Total sale $150 or more Your business or trading name, or your intermediary’s name (person with whom you have an agreement to help you supply your goods or services) X X X Invoice date or, if you do not issue an invoice, the date the GST/HST is paid or payable X X X Total amount paid or payable X X X An indication of the total amount of GST/HST charged or that the amount paid or payable for each taxable supply (other than zero-rated supplies) includes GST/HST at the applicable rate. X X When you supply items taxable at the GST rate and the HST rate, an indication of which items are taxed at the GST rate and which are taxed at the HST rate. X X Your Business Number or your intermediary‘s Business Number (registrant with whom you have an agreement to help you supply your goods or services) X X The buyer’s name or trading name or the name of their authorized agent or representative X A brief description of the goods or services X Terms of payment X
Because the purchaser couldn’t find the Vendor in a reasonable amount of time to provide a copy of this “invoice”, CRA came in and disallowed the GST Input Tax Credit of $50,000. Interest had been accruing, since the month following the date of the transaction, and accumulating. It was, I believe, almost a year later that the lawyer of the Purchaser finally got the Vendor’s lawyer to draft up and include as an attachment in the original sale agreement an invoice that included their GST registration number.
All interest and penalties were reversed, and the GST return amended back to what was originally filed, but I’m sure there must have been some “GST collection agent Blues” during the time for the Purchaser. I mean .. when was the last time you owed GST monies? IT’s not your money – like your balance due on income taxes – it’s TRUST money and they mean business!
Conclusion and Moral of this Story
If you are buying a real property for commercial use, and you are registered for GST .. make sure that the paperwork includes everything necessary to satisfy both your legal concerns .. and any TAX concerns which includes GST! If you need reference, check out Joanne Heffernan’s book (from Pricewaters Cooper) GST/HST and Real Property in Canada … or at least get your lawyer to read it!