Brand new and GST paid Vancouver Real Estate | Why realtors and sellers are wrong

Countless times a year I see new listings come on the MLS system with wording in the public comments referring to GST. Typically the wording is along the lines of “Brand new and GST paid”. As I have been taught by extensive training and 14 experience at Macdonald Realty these agents and sellers are in for a very rude awakening in the future.

When a buyer purchases a pre-sale condo, waits a number of years while construction occurs, and then completes that sale the buyer will be paying GST on the original contract price of the property. For example: If you entered into a contract with a developer in 2014 for a 1 bedroom condo and the price was $400,000 + GST. When the sale completes you will be paying Canada Revenue Agency 5% GST on the sale of that property (potential rebates are irrelevant for the sake of this post) the total GST paid will be $20,000. After the sale has completed and ownership had transferred into the purchaser’s name, the purchaser is now free to re-sell the property at the new 2017 market value. That 1 bedroom condo is now worth $500,000 and the realtor lists the property on MLS for $500,000 and advertises the property as “Brand New GST Paid!”.

Technically Canada Revenue Agency views the original purchaser, who purchased for $400,000, as a developer too. If you re-sale a property immediately after you took ownership it is obvious to Revenue Canada that you had no intention of living in the property. There is now GST due on the difference between the $400,000 (original purchase price) and $500,000 (re-sale price). The Revenue Agency will want the $5,000 in additional GST payable on this transaction.

Now imagine the GST on a property originally purchased for $800,000 and resold for $1,100,000 etc etc.

I am not an accountant and it is always best to seek professional advise regarding GST. I will say, that these properties advertised as “GST Paid” will cause many problems for the realtors, seller, and buyer when CRA sends the new buyer a letter requesting the missing and payable GST.