Financial Literacy

Blindsided: 7 Sneaky HST Surprises

By: Justin Leung on July 23, 2014
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The $30,000 real estate commission you just forked over to your realtor? Yeah, you’re going to have to pay HST on that.
Unfortunately, it’s hard to go through life without getting blindsided by the good old HST from time to time. And although bureaucrats have designed a wonderful name for this pernicious little tax (who doesn’t like something “harmonized”?), it can still strike when you least expect it.
Here are seven instances where Canadians often get blindsided by the HST. Protect yourself now (or at least be prepared to write a check!)

(1) Real Estate Agent Commissions. Your real estate agent already takes a substantial bite out of your equity when you sell your home, but what you may not realize is that you also have to pay HST on the commission. And, because home prices are so high and real estate commissions are so big, the HST that sellers owe often totals thousands of dollars. Be sure to budget for the HST on your realtor’s commission when you are selling your home.
(2) Mortgage Insurance. Homebuyers who require mortgage insurance are often shocked to learn they have to pay HST on the premium. They usually find out this fact right around the closing date too, which can be an added stress.  If, for example, your mortgage insurance premium totals $10,000, which is not uncommon in some Canadian cities, you’ll have to fork over an additional $1,300 in HST at closing if you live in Ontario. The HST is payable immediately, and it can’t be rolled into your mortgage. Buyers beware!
(3) Vacant Land. Ever dream of buying a piece of land somewhere so that you can have room to roam or maybe even build a home? You might just have to pay HST on that, so take the potential tax liability into consideration when you’re out looking for your little piece of heaven.  HST is usually payable when buying from builders, municipalities, etc. and it’s also payable when the lot has been subdivided from a larger piece of property, with a few exceptions. Check with your lawyer before making a land purchase so that you understand what the tax implications will be.
(4) New Homes. While resale homes are typically exempt from the HST, new homes are not. It's true that buyers using their new home as a principal residence will receive substantial HST rebates on the first $450,000 of the property’s purchase price, but there are no rebates above this point, which means folks in expensive cities like Toronto are still on the hook for tens of thousands of dollars in tax when they buy a new home. It’s also easy to run afoul of CRA rules on new home purchases if you’re not careful. If, for example, you buy a new property jointly with someone who will not be using it as a principal residence, you probably won’t qualify for any HST rebates, and could be liable for tax on the full purchase price of the home. Ouch!
(5) Airfare. Domestic air travel is subject to the harmonized sales tax when flights originate in a province using the HST.  HST jurisdictions like Ontario once upon a time only charged GST on air travel – not anymore!
(6) Weddings. Many couples set a budget for their wedding proceedings without taking into account the HST.  The problem is, Mr. Taxman loves to crash weddings and you can count on him being there on your big day. In Ontario, for example, couples should add 13 percent to whatever their base budget is. The good news is that some wedding venues now provide an ‘all in’ price so families aren’t blindsided when they get the final bill. One other curiosity: in a rare show of mercy, the CRA exempts wedding cakes from the HST.

(7) Funerals. Nothing is certain in life except death and, it seems, the HST.  In Ontario, for example, HST payable on a $5000 funeral would amount to $650.  The HST bill in Nova Scotia would be even higher, at $750. In some provinces, funeral contracts entered into before July 1, 2010 which are payable upon death are exempt from the tax, which is one small piece of good news – for those who made their funeral arrangements four years ago.