From time to time, the HST clause in the Agreement of Purchase and Sale is filled out incorrectly. This could prove to be a big mistake.
This is the HST Clause in the standard form Agreement of Purchase and Sale (2016 version):
7. HST: If the sale of the Property (Real Property as described above) is subject to Harmonized Sales Tax (HST), then such tax shall be …………………………………………………. (included in/in addition to)….. the Purchase Price. If the sale of the Property is not subject to HST, Seller agrees to certify on or before closing, that the sale of the Property is not subject to HST. Any HST on chattels, if applicable, is not included in the Purchase Price.
The blank space is to include either the words:
- “included in”, or
- “in addition to”
Missing the correct phrase could lead to a $130,000.00 error on a million dollar property.
Normally, resale residential properties are exempt. However, sometimes a business has been conducted upon the premises. Only the Seller would really know.
The result is important to both parties. Sometimes, the “saving grace” will be that the Buyer registers, obtains an HST number, and is able to offset the tax that might otherwise have been payable.
Consider a small business as a Seller to a non-profit organization as a Buyer. The Buyer is exempt from HST and will not be able to register. This won’t work, and we have a problem to the size of 13% of the purchase price.
Depending upon various software programs, either of the two provisions may be the default setting. On occasion throughout negotiations, this may change by accident. If it does, since it is part of the printed portion of the document, it may not be noticed or initialled. This again would be a 13% error.
It should be noted that, if the HST does not apply, then the Seller is to certify that fact.
From time to time, there may be appliances or chattels sold at the same time. HST would apply. Such HST would be in addition to the purchase price.
For new homes constructed by builders, the HST is often “included” since they wish to take advantage of an attractive “all in” price for consumers. In those cases, HST will be included and the buyers will assign their right to a New Home HST Rebate directly to the Builder. The Buyer must occupy the premises. This rebate is not for investors, however another rebate would be.
Assignments can create a problem. In a number of cases, although the original purchase had an “all in” price, on an assignment the builder may not provide that same opportunity to an assignee. This means that the assignee will have to pay the full purchase price PLUS HST and then submit an application for a refund which might easily take six (6) months.
Brian Madigan LL.B., Broker