In Toronto, you generally do not have to pay the 13% Harmonized Sales Tax (HST) on the actual purchase price of a used, residential resale home. However, you are legally required to pay HST on almost all the services associated with closing the transaction, such as real estate agent commissions, real estate lawyer fees, and home inspection costs.
When budgeting to buy a property in the Greater Toronto Area (GTA), buyers meticulously calculate their down payment, land transfer taxes, and monthly mortgage costs. One of the most common sources of panic for first-time homebuyers is wondering whether they will be hit with a massive 13% tax bill on closing day. Fortunately, the Canada Revenue Agency (CRA) provides clear guidelines regarding how the Harmonized Sales Tax (HST) applies to real estate transactions across Ontario. Understanding these rules can save you from unexpected financial stress as your closing date approaches.
The fundamental rule of thumb in Ontario real estate is that “used” residential housing is tax-exempt. 🔍 If the home has been previously lived in by an individual or family, it is classified as a resale home, and the seller does not charge HST on the sale price. However, the exact opposite is true for brand-new pre-construction condos in downtown Toronto or newly built suburban houses in Markham and Mississauga, where HST is universally applied to the purchase price.
Step-by-Step Process to Determine Your HST Liability in Toronto
As a buyer, you must carefully navigate the financial details of your transaction to understand exactly where the 13% tax will appear. Here is the standard step-by-step process you and your real estate lawyer will follow to ensure you are fully prepared for closing day.
Step 1: Identify the Property Classification
The first step is determining if the property is truly a standard resale home. 📄 While most older homes in Toronto are tax-exempt, the CRA has a strict rule regarding “substantially renovated” properties. If an investor bought a dilapidated bungalow in Etobicoke, gutted it completely down to the foundational studs, and rebuilt it, the CRA may classify it as a “new” home. In this scenario, the 13% HST would apply to the purchase price, meaning you must clarify the property’s history before signing an offer.
Step 2: Review the OREA Agreement of Purchase and Sale
When your real estate agent drafts your offer, they will use a standard OREA Agreement of Purchase and Sale. There is a specific clause in this contract dedicated to HST. For a standard Toronto resale home, your agent will check the box stating that HST is “Included in” the purchase price (meaning if any tax is surprisingly owed, the seller must pay it out of their proceeds). This vital legal check protects you from sudden tax liabilities.
Step 3: Budget for HST on Closing Services
While the house itself is exempt, the services you hire to complete the deal are not. 💰 A week before closing, your real estate lawyer will present you with a Statement of Adjustments. You will clearly see the 13% HST applied to your lawyer’s legal fees, the home appraiser’s fee, and the home inspector’s invoice. Most importantly, if you are a buyer who signed an agreement to pay your own real estate agent’s commission (which is becoming more common), you must pay HST on that commission amount.
How Much Does it Cost in Toronto?
To put things into perspective, let’s look at how HST impacts a typical real estate transaction for a resale home versus a brand-new build. Here is a breakdown of common expenses and whether the 13% tax applies in Ontario:
| Real Estate Expense | Does 13% HST Apply? |
|---|---|
| Purchase Price of a Standard Resale Home | No |
| Purchase Price of a Pre-Construction Home | Yes (Often baked into the builder’s price) |
| CMHC Default Mortgage Insurance Premium | Yes (The 13% tax cannot be rolled into the mortgage) |
| Real Estate Lawyer Legal Fees | Yes |
| Toronto Municipal Land Transfer Tax (MLTT) | No |
- The CMHC Catch: If you are putting down less than 20% on a home, you must buy mortgage default insurance. While the insurance premium itself is added to your total mortgage loan, the 13% HST on that premium must be paid in hard cash on closing day.
- Substantially Renovated Homes: If you accidentally buy a flipped house that qualifies as a “new build” under CRA rules, you could owe over $100,000 in unexpected taxes, so title insurance and proper legal review are critical.
- Commercial Real Estate: If you are buying a commercial building in Toronto, standard residential exemptions do not apply, and HST is almost always applicable to the purchase price.
How Long Does the Process Take?
Your HST obligations are finalized during the typical 30 to 60-day closing period of your transaction. ⌖ All applicable taxes on services and insurance premiums are calculated by your real estate lawyer and bundled into your final closing costs. You simply bring one certified cheque or wire transfer to your lawyer’s office a few days before closing, and they disburse the proper tax amounts to the CRA and the service providers on your behalf.
Frequently Asked Questions (FAQ)
Do I have to pay HST on my mortgage loan amount?
No. Financial instruments like mortgages and standard bank interest are exempt from the Harmonized Sales Tax in Canada. You only pay HST on the bank’s administrative appraisal fees or default insurance premiums if applicable.
Who pays the HST on the real estate agent’s commission?
Generally, the seller pays the real estate commission for both agents out of the proceeds of the sale, and therefore the seller pays the 13% HST on that total commission. However, if the buyer agreed in a Buyer Representation Agreement to cover a specific commission shortfall, the buyer would pay HST on their portion.
Are there any HST rebates for buying a home in Ontario?
Yes, but only for newly constructed or substantially renovated homes. The New Housing Rebate allows buyers to recover a portion of the provincial and federal HST paid, provided they use the property as their primary place of residence.
Do I pay HST on property taxes in Toronto?
No. Municipal property taxes levied by the City of Toronto are completely exempt from the 13% provincial and federal Harmonized Sales Tax.
Leave a Reply