Which Items Are Exempted From Gst?

Exempt goods and services are those that do not attract any tax under section 2(47) of CGST Act 2017). These include; live animals, meat, eggs, honey, and milk products fish, meat and filets, non – edible animal products, live trees and plants, vegetable fruits and dry fruits, tea, coffee and spices, edible grains, milling industry products, oilseeds, fruit and part of plants gums, resins, vegetable sap and extract.

What Is the Difference Between Zero Rated and Exempt Gst?

There is no difference between GST/HST zero-rated and exempt goods and services from the customer's point of view; in neither case does he or she get charged GST/HST. However, from the business owner's point of view, there is a difference in how the two classes of goods and services are treated when filing a GST/HST return. Normally, when you fill out your GST/HST return, you can claim Input Tax Credits (ITCs) to recover the GST/HST you paid or owe on your business purchases and/or expenses.

What Items Are Exempt From Hst in Ontario?

The government doesn't tax the sale of zero-rated goods but allows credits for the value-added tax paid on inputs. On the other hand, if a good or business is exempt, the government doesn't tax the good's sale, but producers cannot claim a credit for the VAT they pay on inputs to produce it.

Zero-rated and Exempt Supplies for GST/HST

Flipping houses is predicated on the resale of valuable assets, and the high transaction costs that take place come with multiple tax implications. In particular, businesses in this field must understand the nuances of the goods and services tax.

The Canada Revenue Agency is Looking at GST on House Flipping

GST is substantial, has available rebate programs and is coming under increased scrutiny of the Canada Revenue Agency. In Ontario alone, the agency audited 28,578 filings totaling $495.2 million for GST/HST-related matters between April 2015 and December 2018. Much of the increased attention has been specifically looked at paid and unpaid GST on house flipping transactions.

With regards to GST and house flipping, there are two sides of the tax that businesses have to consider. The first is the GST they pay for any renovations made to homes, and the second is any GST that’s charged to homebuyers. In both matters, of course, the goods and services tax is combined with the provincial sales tax into Ontario’s harmonized sales tax.

Claiming the GST/HST New Housing Rebate on Substantial Renovations

The GST/HST New Housing Rebate refunds GST paid for new home construction or substantial existing home renovation if the house is used as a dwelling place. The rebate is most often claimed by homeowners who are purchasing their primary residence, but it can sometimes be claimed by other parties.

Under the program’s provisions for other parties, businesses that pay GST on flipping homes in ontario projects which involve renovations may be able to reclaim a portion or all of their paid GST. There are multiple criteria that must be met in order to claim the GST/HST New Housing Rebate when flipping homes, but the biggest one is that a renovation must be “substantial.”

“Substantial” renovations are defined as those that either:

Increase the size of a residence by at least 100 percent
Remove or replace at least 90 percent of the interior

Most flipping houses in canada projects don’t meet the first criterion, but renovations of fixer-uppers may meet the second depending on the hst real estate ontario of the house when purchased and level of renovations performed. For businesses that pay GST on flipping houses in toronto fixer-upper projects, getting some of the paid GST back is a major benefit as a lot of goods and services are usually paid for during these projects.

In total, businesses that flip a house with a qualifying renovation project may get up to $6,300 back from the federal government and $30,000 back from Ontario.

person flipping home

Charging GST on House Flipping Property Sales

When the time to sell a flipped property comes, most businesses are required to charge the buyer GST. There are a couple of exceptions that may apply to this general rule, but they are the uncommon exception rather than the norm.

Businesses with Minimal Income

First, businesses that have minimal income might not be required to charge GST. In select instances, businesses that make less than $30,000 annually aren’t required to charge GST/HST.

Businesses that flip houses, however, frequently make more than $30,000 in the years that they sell properties. Barring a major mistake or downturn in the real estate market, most businesses that successfully flip houses expect to make over $30,000 a year. In fact, it’s fairly common to make that much on a single sale.

Even if a business does make less than $30,000 in a year, there are still incentives for charging GST. Charging GST is normally a prerequisite to taking advantage of any available Input Tax Credits, which many businesses rely on.

Homeowners Flipping Primary Residences

Second, homeowners who sell their primary residence at a profit don’t need to charge GST on the sale of their home under the principal residence exemption. A number of individuals and businesses have tried to take advantage of this program when flipping houses by claiming a house is a primary residence when it really doesn’t meet the exemption criteria. This is the type of evasiveness the Canada Revenue Agency is investigating more frequently and thoroughly.

In order to qualify as a primary residence, individuals must:

Consistently live in the home
Have another source of income (other than flipping)
Prove they didn’t purchase the house with the sole purpose of generating income from it

Consistently living in the property typically requires moving in shortly after the purchase and any necessary renovations are complete, and remaining there for some time. Additionally, living mostly in another residence isn’t allowed.

In the event that a house was a primary residence for a portion of the time that an individual owned the property, a portion of the sale may be exempt from GST. For example, a homeowner that lived in a house for four out of five years can likely claim 80 percent of the property’s appreciation as exempt.

GST Must Be Charged on Most Home Sales

After all requirements are considered, most businesses in this field must charge GST on house flipping sales. Businesses are then responsible for remitting that payment to the Canada Revenue Agency, and failing to do so can lead to financial and legal consequences.

GST, however, doesn’t necessarily need to be a barrier that keeps people from buying houses. Those same federal and provincial GST/HST New Housing Rebate programs that house flippers can sometimes take advantage of are only more widely available to home buyers. Many home purchases qualify for these rebates so long as the home will be used for someone’s primary residence (regardless of whether that person is the owner or a tenant).

Thus, buyers of flipped houses can often get a large portion or all of the GST they pay during a home sale back. If businesses simply make sure buyers are aware of this rebate program, potential buyers will understand that GST is charged but returned. It’s not a cost that really adds to the net purchase price once the rebate is paid back.

Work with a Law Firm That Understands GST on House Flipping

While these broad guidelines are generally true, the laws regarding GST and house flipping are detailed and complex. To make sure your business is in compliance with all applicable laws and taking advantage of every program available, work with a law firm that specializes in GST on house flipping.