Residential immovable – subject or not to GST and QST - Declaration to be made in the mandatory brokerage contract and promise to purchase forms

The brokerage contract and promise to purchase mandatory forms for residential brokerage include the obligation to specify whether or not an immovable is subject to goods and services tax (GST) and Québec sales tax (QST).

At Brokerage contract stage

The fact that a residential immovable (including divided and undivided co-ownership) is subject or not to GST and QST must be specified in clause 4.2 of the form. This clause stipulates that the seller must provide to the broker as soon as possible the proportion in which the immovable is subject to these taxes.

The aim of this stipulation introduced to Brokerage contract is to draw seller’s attention, as soon as the brokerage contract is taken, to the fact that the immovable can be subject to taxes, in whole or in part. For this purpose, although the licence holder is obliged to inform his client seller that the immovable could be subject in whole or in part to GST or QST, it is the seller’s responsibility to provide the broker with the proportion in which the immovable is subject to taxes, and it’s not for the broker to determine that.

Therefore, upon his broker’s recommendation, the seller has to take steps to obtain this information and immediately inform the broker of the proportion in which the immovable is subject to taxes (verification to be done with an expert in the field, such as his accountant or tax expert and, if applicable, with tax authorities). The broker must then keep the information obtained on brokerage contract record.

The situations covered by tax liability declaration are mainly those relating to the sale of a new immovable or an immovable that has undergone substantial renovations at 90% or more or the sale of an immovable of which a part is used for commercial purposes (e.g. multi-dwellings immovable which may include commercial premises). To learn more about tax liability regarding the sale of a residential immovable, read the following article: Application of GST and QST to the sale of a building used for residential and commercial purposes.

Exceptionally, in more complex cases where it is too difficult to determine, upon the signing of the brokerage contract, whether the immovable is subject or not to goods and services tax and Québec sales tax, the boxes provided for this purpose could be left blank, to be immediately completed thereafter using an Amendments form and provided in the description sheet, because this information will be needed to conclude the transaction.

At Promise to purchase stage

Likewise, the fact that a residential immovable (including divided and undivided co-ownership) is or is not subject to GST and QST must be specified in clause 4.2 of the Promise to purchase form.

In the same clause, it is required to indicate the proportion (%) in which the immovable is subject to taxes. This information should have been obtained from the seller and, if applicable, communicated by the seller’s broker to the buyer’s broker (e.g.: on description sheet).

Liability to GST and QST and the proportion in which the immovable is subject to taxes is an essential piece of information allowing the buyer to have an idea about the immovable’s real acquisition cost. To avoid unpleasant surprises for the buyer, it should be communicated as soon as possible during the acquisition process.

If the information is not available at the time the Promise to purchase is drafted, the buyer may use clause 9.1 of this form to obtain it from the seller’s broker within the specified time frame.

For any inquiries about the liability of an immovable to GST and QST or the proportion in which an immovable is subject to taxes, it is strongly recommended to consult a tax expert.

Note that the broker’s remuneration must be calculated on the price before taxes. For any questions on the forms, please feel free to contact Info OACIQ.

Also read:

On the Promise to purchase forms: how to provide for the financing of renovations or taxes

Sale or purchase of a new construction: Rules to follow