Ask an Accountant: GST on the sale of land

Francesca Giroux, CPA
For the Lakeside Leader

When selling your home or any type of land, even as part of the insurance process after a fire, it is important to review whether or not the home or land sale is subject to or exempt from GST. Sales of used owner-occupied homes are usually GST exempt, since the owner is not a builder and the property is not sold in the course of a business. An example where the sale of a home would be considered taxable is when an individual builds and sells new houses as their primary source of income. The land is still considered to be taxable even if the individual lives in the home for a brief period of time with the intention of building another house that the individual will move into as soon as a purchaser is found for the home they are currently occupying.

If a portion of the home is used for purposes other than the owner’s residence (e.g. a portion of the home is used as an office or a bed and breakfast) the sale of the home is considered exempt if more than 50 per cent of the home is used primarily for the owner’s use. For example, if an individual’s spouse ran a small business out an office in the home and the office took up less than 50 per cent of the space, the sale of this home would not be taxable for GST purposes. If less than 50 per cent of the home is used primarily as a place of residence then the home is treated as two separate properties when it is sold and GST only applies to the portion in which the owner does not live.

If farmland is sold that includes a residence or a house, the sale is separated into two separate sales for GST purposes, the first being the residence plus the land that is necessary for the use and enjoyment of the house, which is subject to the rules above, and the second sale is the remaining portion of farmland. Farmland refers to the land that is regularly used by a person for the purpose of producing income from a farming business carried on by that individual. The farmland includes land (i.e. bush, trees, etc.) that may not be used directly in a farming business, and fixtures such as barns or corrals. The sale of farmland is generally considered to be taxable for GST purposes, unless the farmer sells or transfers ownership of the farmland to an individual related to the farmer (or to a former spouse or common-law partner) who will use the land for their own personal use or enjoyment, not as a farming business. If the farmer sells the land as part of a sale of the farming business, the farmer and purchaser may jointly elect to have no GST payable on the sale by completing form GST 44, Election Concerning the Acquisition of a Business or Part of a Business.

Please e-mail your questions to bonnie@nashgirouxllp.ca.

Information provided is of a general nature. As each individual or company’s situation is unique, you may wish to consult with your CGA for information specific to your own needs.

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