Determining whether or not you have to pay Harmonized Sales Tax ("HST") during a real estate transaction can be a tricky situation. There can be rebates, exceptions and a whole host of factors which come into play. The sale of a vacant lot carries with it its own problems.
When Do you Have to Pay the Tax Man?
In the following situations the sale of vacant land by an individual will attract HST:
The sale of land that is capital property that had been used primarily in a business;
The sale of land in the course of a business; or,
The sale of a parcel of land created by subdividing another parcel into more than two parts.
When Is the Sale Tax Free?
Most sales of vacant land by individuals are HST tax free, including the following examples:
The sale of land that had been kept for personal use; or,
The sale to a relative (or to a former spouse or common-law partner) for their personal use of a parcel of land created by subdividing another parcel.
Sales by corporations will attract HST as the vast majority of exceptions do not apply when the sale is primarily for a business purpose.
Some Unique Examples of HST on Vacant Land
If you inherit a piece of land from an estate, and the land was not used for any commercial purposes by you or before you acquired it, and now you want it sell it to a developer, do you have to charge HST? In this situation you likely do not have to charge HST because the land is not capital property and it will not be sold in the course of business. Since you inherited the land and did not purchase it, you should not be considered to have sold the land in the course of an adventure or concern in the nature of trade.
If you own a parcel of land and want to subdivide it to sell the parts separately do you have to charge HST? If you have never subdivided the parcel of land in the past and you subdivide the parcel into only two parts the sale of either of those parts is exempt from HST. If you subdivide it into more than two parts the sale is taxable. However, if you sell any part to a relative, that particular part is not taxable. In addition, if, when you originally bought the land, you always intended to sell the land in the course of an adventure or concern in the nature of trade (either the whole parcel or a part) you may elect to charge tax on the sale. To add to the confusion there is a possibility for a rebate.
There are many other examples and situations where the sale may be exempt or subject to tax. You should contact a lawyer who can help you better understand your obligations and to make sure that you are not forgetting to charge and collect HST.