HST on commercial real estate in Ontario

Most sales of commercial real estate in Ontario are taxable, so the commercial agreement of purchase and sale states the price plus HST. If the buyer is registered for HST, the seller does not have to collect it; the buyer self-assesses and reports the tax on its own return, usually claiming an offsetting input tax credit. If the buyer is not registered, the seller collects HST on closing. Ordinary resales of used homes are generally exempt. Your job is to get the clause right and refer the tax questions.

HST questions in Course 4 and Simulation 2 are rarely about arithmetic. They test which form treats HST how, what a registered buyer hands over, and where your role stops. The rules below come from the Excise Tax Act, the federal statute that imposes GST and HST. Ontario's rate is 13 per cent: the 5 per cent federal rate (Excise Tax Act, s. 165(1)) plus Ontario's 8 per cent (Schedule VIII).

HST is a federal and provincial tax imposed under the Excise Tax Act, not the Income Tax Act.

Is HST charged on commercial real estate in Ontario?

Usually, yes. HST applies to a supply of real property, by sale or by lease, unless an exemption covers it. The exemptions are mostly residential.

The tax on a sale is payable on the earlier of the day ownership transfers and the day possession transfers under the agreement (s. 168(5)(b)). That is why the clause matters before anyone signs, not at closing.

Why does the commercial agreement say "plus HST"?

Because the default on the commercial form is that HST is in addition to the price. The residential form lets the parties choose, and on a residential resale the usual wording is "included in" the price, which puts the risk on the seller if the sale turns out to be taxable.

Writing "HST included" on a commercial offer to "keep it simple" is a classic wrong answer: it muddles who owes the tax.

What happens when the buyer is registered for HST?

A seller of taxable real property by way of sale is not required to collect the tax where the buyer is registered (Excise Tax Act, s. 221(2)(b)). There is a carve-out: if the registered buyer is an individual, the exception does not apply to a residential complex.

The buyer then accounts for the tax itself. A registered buyer that acquired the property primarily for use or supply in its commercial activities pays the tax and reports it in its return for the period in which the tax became payable (s. 228(4)(a)). Any other buyer in this position pays by the last day of the month after the tax became payable, with a separate return in prescribed form (s. 228(4)(b)). A registered buyer using the property commercially usually claims an input tax credit for the same amount (s. 169), so the cash cost often nets out.

On the agreement, a registered buyer typically gives:

• its HST registration number;
• a warranty that it will self-assess and remit the tax and file the required return; and
• an indemnity in the seller's favour, which survives closing.

As the course teaches, if the buyer fails to remit, the risk can fall back on the seller, which is why all three belong in the clause. Use one branch of the clause only: either HST is added and collected, or the buyer self-assesses.

What if the buyer is not registered?

Then the general rule applies: every person who makes a taxable supply collects the tax on the Crown's behalf (s. 221(1)). The seller collects 13 per cent on closing and remits it, and the buyer's lawyer builds the tax into the closing funds.

This is where the salesperson's first question matters: is your client registered, and in what exact legal name? A corporation buying through a numbered company needs that company's registration, not its parent's. Our guide on how to study Course 4 covers the related rule on naming the buyer by its exact legal name.

How does HST work on a mixed-use building?

A supply of real property that includes a residential complex and other real property is treated as two separate supplies (s. 136(2)). The commercial part is taxable. The residential part of a resale by someone who is not its builder is usually exempt. Costs follow the same split: input tax credits are available only for the commercial share.

Leases split the same way. The shop rents are taxable; apartment leases of a month or more are exempt. For how rent is structured on the commercial side, see net vs gross leases.

Is HST charged on the brokerage commission?

Yes. The brokerage's service is a taxable supply, so HST is charged on the fee, not on the sale price. That is true whether the sale itself is taxable or exempt. A buyer self-assessing on the property does not change the commission: the brokerage charges HST on its invoice. Our exam math guide has more fee calculations.

A worked example: a mixed-use sale in Stratford

Corliss Holdings Inc., registered for HST, agrees to buy a three-storey building on a main street in Stratford for $1,800,000. The ground floor is two shops; the upper floors are four apartments. The lawyers allocate $720,000 to the commercial part and $1,080,000 to the residential part. The seller, Ruth Okonjo, bought the building as an investment and is not its builder.

Corliss gives its registration number, warranty and indemnity. Ruth's salesperson does not certify the allocation or the exemption; Ruth's accountant and lawyer confirm both. If Corliss were not registered, Ruth would collect $93,600 on closing.

What does the salesperson do, and what goes to the accountant or lawyer?

You spot the issue, ask the right questions and draft the clause that fits. You do not decide whether HST applies or calculate a client's tax position. A registrant must advise a person to get services from someone else when the registrant cannot provide them with reasonable knowledge, skill and competence (Code of Ethics, O. Reg. 365/22, s. 11(1)), and must not discourage them from getting that advice (s. 11(2)).

The self-assessment exception covers real property sold by way of sale, so equipment in the same deal can be treated differently. On the sale of a business, a joint election may apply; see selling a business in Ontario.

Frequently asked questions

Does a registered tenant self-assess HST on commercial rent? No. The registered-buyer exception covers sales of real property only. The landlord charges HST on the rent, and a registered tenant using the space in its business can usually claim it back as an input tax credit.

Is HST charged on the resale of a used house? Generally not, if the seller is not the builder and the home has been used only as a residence. Substantial renovation or business use can change that, which is a question for the accountant.

Who pays HST on the commission when the buyer self-assesses? The party paying the brokerage fee pays HST on that fee. Self-assessment on the property does not affect the HST on commission.

Should the salesperson tell a client whether HST applies? No. Explain the clause and the general rules, then refer the client to an accountant or lawyer for their position.

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