How does HST affect Real Estate?

The BC government announced on July 23, 2009 that BC would harmonize its 7 percent PST with the GST to create a 12 percent HST on most GST-taxable goods and services provided in BC.
The HSTs will generally apply to the same tax base as the GST, with some exceptions.
The HST will be federally administered by the Canada Revenue Agency (CRA). GST/HST registered businesses will only be required to file one GST/HST return and there will be one audit.
How will Sales Tax Harmonization affect Real Estate transactions?
The sales tax treatment of GST registered REALTORS® services will change. GST registered REALTORS® will be automatically registered for the HST. Rather than REALTORS® commissions being subject to GST at the rate of 5 percent, REALTORS® commissions for services in Ontario and British Columbia will generally be subject to HST at the rates of 13 and 12 percent respectively.
When will the HST Apply to REALTORS® Services?
As mentioned, HST will generally apply to the same tax base as the current HST. Also, GST registered REALTORS® will be automatically registered for the HST. As a result, REALTORS® will apply HST to the fees for their services that are currently subject to GST.
Still, GST/HST registered REALTORS® will need to take into account the province in which their services are performed and the timing of their services during the transitional period for purposes of determining whether GST or HST applies.
Place of Supply
At the date of writing this article, Ontario and BC have not published the technical rules explaining how a GST/HST registrant is to determine if a good or service is supplied in or outside Ontario or BC. However, based on the rules that were implemented for sales tax harmonization in Quebec and BC, we can make some reasonable assumptions about how the place of supply of REALTORS® services will be determined for Ontario and BC HST purposes.
The HST will likely apply to REALTORS® services based on the location of the real property to which the REALTORS® services relate. For example, Ontario HST will apply to a REALTORS® commission for services in respect of a house sale in Ottawa, Ontario.
Transitional Rules
Ontario and BC recently released general transitional rules for the HST. These 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 REALTORS® services to the extent, expressed as a percentage, that the services are performed on or after July 1, 2010. However, if 90 percent 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 that time of closing. More than 90 percent of the REALTORS® services were performed before July 1, 2010. In these circumstances, the GST at the rate of 5 percent 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, two thirds of the services were performed from May 1, 2010 to June 30, 2010 and one third of the services were performed from July 1, 2010 to July 31, 2010. The REALTORS® will charge GST on two thirds of the amount charged for the services and HST on the remaining third.
Will REALTORS® Recover the HST they Pay on their Costs?
REALTORS® will generally be able to claim ITCs for the HST on their purchases on the same basis as the current GST system.
What is the Impact of HST on Real Estate Transactions?
The HST treatment of real estate transactions will generally follow the current GST treatment of real estate transactions. Sales of used residential housing and long-term rentals of residential housing will be exempt for HST purposes. Sales of new residential housing will be subject to HST and will qualify for GST, HST, and transitional rebates (subject to certain thresholds and maximum amounts). Sales and rentals of commercial real property will be subject to HST.