GST on Real Property

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Tax Question:

How is GST reported and paid on the purchase of taxable Real Property?

Facts:

For tax purposes, Real Property refers to land and anything permanently affixed to the land that can be purchased or leased including mobile homes, commercial buildings, apartments, homes and offices. Generally speaking, GST is charged on the sale or lease of Real Property.

Discussion:

If you are registered for GST for business purposes and have a GST number, GST paid for business purposes can be claimed as an ITC (income tax credit) on your GST return. However, paying the GST on a large transaction such as Real Property and then waiting to claim the ITC’s on your next GST return can be tough on your cash flow.

In recognition of this, CRA requires you to self-assess the GST on the purchase of Real Property instead of paying it to the supplier. If you are using the Real Property primarily (more than 50%) in the course of commercial activities, the self-assessment of the GST on the Real Property is reported on your regular GST return (on form GST 34) at line 205 (GST due on the acquisition of taxable Real Property) and the same amount is reported as ITC’s on line 106 (GST paid on qualifying expenses) resulting in no cash outlay for the GST on this transaction.

If you are using the Real Property less than 50% for commercial activities, you would use form GST 60 to self-assess and pay the GST before the last day of the month after the transaction took place. You would be eligible to claim the business portion of the ITC’s on your next regular GST return (form GST 34).

If you are unaware of this self-assessment obligation and pay the GST to the supplier in error, you are still obligated to self-assess in the manner stated above resulting in zero cash flow for the ITC’s. It is up to you to recover the GST from the supplier.

Dawn Loeffler, BA (Hons), CPA, CA
Manager, Gilmour Group CPA’s
Email: faqs@gilmour.ca
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