How to Calculate a Real Estate Sale Price Net of GST

GST/HST applies on all real estate transactions except resales of primary residences.

The Goods and Services Tax (GST) is a Canadian federal value-added tax collected on most goods and services. Some items are exempt, such as basic groceries, prescription drugs, educational services and financial services. The GST was introduced at 7 percent on January 1, 1991, and reduced to 5 percent on January 1, 2008. Several provinces have combined their sales taxes with the GST to create the Harmonized Sales Tax, known as the HST.

Instructions

1. Assess your eligibility for any rebates on the GST or HST paid on real estate transactions. If you purchase a new home, you may qualify for a rebate of the GST/HST paid. If you make major renovations to your home, you may qualify for a rebate of the GST/HST paid on labor and materials.

2. Calculate the amount of GST rebate available. In 2010, the new housing rebate was 36 percent of the GST or the federal part of the HST. The maximum rebate available was $6,300 Canadian. The rebate is phased out for houses priced between $350,000 and $450,000 Canadian. For example, if you bought a new home for $300,000 Canadian, the GST at 5 percent is $15,000 Canadian. The rebate is 36 percent of the GST paid, or $5,400 Canadian. Therefore, the net GST is $9,600 Canadian.

3. Calculate the real estate sale price net of GST. The gross price is the listing price plus the 5 percent GST, plus applicable provincial taxes. For HST provinces, it is the listing price plus the HST, which includes the federal GST. Subtract the net amount of the GST after applicable rebates. To wrap up the example, the gross price is equal to the listing price plus the GST, or $315,000 Canadian. The net GST is $9,600 Canadian. Therefore, the sale price net of GST is $305,400 Canadian.

Tips & Warnings

• Appraisal fees, lawyer fees and various other closing costs are also subject to the GST/HST.

• Rebates can be claimed on new "primary" residences. For example, if you are buying a cottage or a vacation property, you'll not be eligible for a rebate on the second property.

• A provincial new housing rebate may be available for part of the HST the individual paid to buy, build or substantially renovate his primary place of residence. This rebate is on top of the new housing rebate for the GST or the federal part of the HST.

References

• The Toronto Star: History of the GST, Jan. 1, 2008
• Canada Revenue Agency: Goods and Services Tax/Harmonized Sales Tax (GST/HST)
• Canada Revenue Agency: The 2008 GST/HST Rate Reduction and Purchases of New Housing

Resources

• Canada Revenue Agency: GST/HST New Housing Rebate