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Article of Interest - GST & HST Transitional Rules

GST & HST Transitional Rules

Courtesy of Sutton Group West Coast Realty
By NA

Much confusion has been spreading with regards to the upcoming legislated change of GST to HST and even more confusion exists with regards to the rules that are applicable during the transitional period. With respect to real estate transactions and the tax applicable to REALTORS® commissions, the most confusion exists regarding those transactions that straddle the July 1st 2010 conversion date.


To help sort out the spider web of information that exists, we are referencing two CREA communications issued on March 10th and March 19th, respectively, based on CREA consultations with KPMG LLP.

The following is an extract of the March 10th letter from KPMG in response to HST questions from CREA's Audit Committee Meeting. Of particular note is the definitions provided for the service period:

"In general, GST would apply to the supply of a REALTORS® commission to the extent that the services were performed prior to July 1. HST will apply to a REALTORS® commission paid or payable on or after May 1, 2010 to the extent the services are performed on or after July 1, 2010. However, if 90% or more of the services are performed prior to July 1, GST would apply to the entire transaction, including the services provided after June 30.

The Canada Revenue Agency (CRA) has verbally agreed that a reasonable method of prorating could be based on the number of calendar days covered by the service agreement. This would save REALTORS® from having to keep track of the actual amount of time spent providing services to their clients.

The beginning of the service period is the date of the Listing Agreement. The most conservative approach to determining the end date to use for the calculation woud be to use the date of closing of the transaction. This ensures that any additional or incidental services are captured after the Purchase and Sale Agreement is concluded and is also consistent wth the point in time that the commission becomes payable."

The second communication on March 19th is a Q&A Summary from CREA to assist REALTORS® in determining how the sales tax harmonization will affect their real estate transactions during the transitional period.

Please make note of the last example given whereby a proportianate blend of both GST and HST MUST be applied to the REALTORS® commission.

"The transitional rules explain how HST will apply to transactions that straddle the start-up date. For purposes of the following discussion, it is assumed that a REALTORS® commission becomes due or is paid when the property is sold or leased.

The HST would generally apply to a REALTORS® services to the extent, expressed as a precentage, that the services are performed on or after July 1, 2010. However, if 90% or more of the services are performed before July 1, 2010, the HST will not apply.

For example, a REALTORS® services are performed from June 1, 2010 to July 2, 2010 with the sale of the property closing on July 2, 2010. The REALTORS® commission becomes due at the time of closing. More than 90% of the REALTORS® services were performed before July 1, 2010. In these circumstances, the GST at a rate of 5% will apply to the REALTORS® services.

In another example, a REALTORS® services are performed from May 1, 2010 to July 31, 2010 with the sale of the property closing on July 31, 2010. The REALTORS® commission becomes due at that time. In this case, 2/3 of the services were performed from May 1, 2010 to June 30, 2010 and 1/3 of the services were performed from July 1, 2010 to July 31, 2010. The REALTOR® will charge GST on 2/3 of the amount charged for the services and HST on the remaining 1/3."