Excise Tax Act and Act respecting the Québec sales tax
A broker may be called upon to sell an immovable that is subject, in whole or in part, to sales taxes. The mandatory forms take this reality into account and are designed to draw the seller’s attention to this possibility.
The seller has the obligation to collect the taxes from the buyer and to remit them to the tax authorities of each government. The buyer has the obligation to pay them.
The taxation rate is 5% for GST and 9.975% for QST.
Situations where taxes apply
In real estate, the following are the taxable situations most often encountered:
- sale of a new immovable;
- sale of an immovable containing a commercial portion (such as a multi-dwelling unit with commercial premises), whether it is new or existing;
- sale of an immovable by an enterprise;
- renovated immovable (when the renovations represent 90% or more of the property, which generally implies that only the foundations and the exterior walls have been preserved);
- sale of vacant land if it constitutes business income for the owner.
Note of interest
In the case of the renovation of an immovable, it is necessary to distinguish between the owner-occupant and the owner-lessor, because the Ministère du Revenu makes this distinction.
In the case of an owner-occupant, the buyer will have to pay the taxes. However, the buyer will be eligible for a rebate on the same basis as for the purchase of a new home. In this case, the seller does not pay taxes until he sells the property.
In the case of the rental property, the owner will have to self-assess at the end of the renovations, based on the “fair market value” of the property. However, the immovable will not be taxable at the time of resale.
OBLIGATIONS OF THE PARTIES
|In term of tax laws||In terms of mandatory forms|
► DUTIES AND OBLIGATIONS OF THE BROKER
- The broker must complete section 4.2 of the Exclusive brokerage contract – Sale.
- If the seller does not know the proportion of the immovable that is subject to taxes at the time of signing the brokerage contract, this will not prevent or delay the signing of the contract or the marketing of the immovable. However, the seller will have to provide the information to the broker without delay.
- The broker must:
- keep in the agency’s record any document obtained from the seller to substantiate this information; and
- enter it on the property’s detailed description sheet.
This information must be entered under clause 4.2 of the Promise to purchase.
In the event that the taxability or proportion information was not available at the time of drafting the Promise to purchase, clause 9.1 of the Promise to purchase must be completed to make it conditional upon obtaining this information within a certain time period.