Barry Magee : One Percent Realty Ltd.

Phone : 604.773.2948 | barry@barrymagee.com

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Do I Pay GST on a Never-Occupied Unit?

Do I Pay GST on a Never-Occupied Unit?

When purchasing real estate in Vancouver, many buyers are aware that new presale units are subject to GST. However, what happens when you consider a resale unit that has never been occupied? Let me provide some clarity on this often-overlooked topic.

Q: If I buy a resale condo that’s a couple of years old and has never been occupied, do I have to pay GST?

A: The short answer is yes, you may still be required to pay GST on a never-occupied unit. Surprisingly, even though it’s a resale property, the federal government classifies these units as "new" for GST purposes.

Understanding the GST Implications

When a unit has never been occupied, it is viewed as a transfer of unoccupied inventory from one developer to another. This means that the buyer is liable for GST, even if the building was completed some time ago.

Case Example:

Consider an investor who bought a unit for $500,000 and paid $25,000 in GST. After a year and a half, they sold it for $600,000. The new buyer, unaware of the GST implications, found themselves responsible for an additional $30,000 in taxes upon the resale because the unit had never been occupied. Meanwhile, the original seller claimed back their GST, resulting in a $100,000 profit for the investor.

Additional Scenarios Where GST May Apply

  1. Business Use: If the previous owner used the property for business purposes for more than 50% of their ownership, GST may apply.

  2. Input Tax Credits or Renovations: If the property has claimed input tax credits or has undergone substantial renovations, GST would also be applicable.

Why It Matters to Buyers

Understanding these GST implications is crucial for buyers. Being surprised by a significant tax bill post-purchase is not ideal. As new developments continue to rise around Vancouver, more buyers might encounter these situations with properties a few years old.

Future Market Trends

Should new tax measures be implemented—such as those discussed in recent forums on housing affordability—it could lead to an increase in inventory as investors look to offload units and avoid vacancy taxes. This trend may further affect the resale market dynamics.

Conclusion

As a buyer considering a resale unit that has never been occupied, it’s vital to be informed about the potential GST obligations. Ensuring clarity on the tax status of the property can save you from unexpected costs down the line. Always consult with a knowledgeable real estate professional to navigate these complexities effectively.

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