GST treatment on farmland sale can be tricky

Determining who collects and remits the tax on the sale of real property tends to be confusing and depends on the GST/HST registration of both the seller and the buyer.

The situation of each sale and the parties involved can vary, so it is important to gather as much information as possible regarding both the buyer and seller.

Who are the parties involved? Are they individuals, partnerships or corporations? Who is registered for GST/HST?

How was the property used before the sale? How will the property be used by the new owners?

These factors will affect whether the property is taxable and who is liable to pay and remit the tax if it is.

In our practice, we often have clients who own farmland but are not registered for GST/HST. What happens if they sell taxable farmland to another non-registrant?

In a scenario where neither the buyer nor seller are registrants for GST/HST purposes, it is the responsibility of the seller to collect GST/HST on the sale of taxable real property.

Regardless of whether the farmland is taxable, a sale of real property should generally not be included when determining the “small supplier” threshold as defined under the GST regulations. We would not advise the farmer in this case to register for GST/HST and then sell the farmland to remit the tax.

In this circumstance, the vendor will complete a form GST 62 to report GST/HST on the sale of taxable real property.

The due date for filing is the last day of the month following the month of sale. For example, if the sale occurs on any day in November, the return and payment of GST/HST are due Dec. 31.

As well, farmers who paid GST/HST on the original purchase of the property and collected GST on the current sale of the farmland may be eligible to apply for a rebate to recover the basic tax content.

It is important to note that if a principal residence on the farmland is included in the sale, the portion of the property that includes the house plus the “land that is necessary for the use and enjoyment of the house” would be considered exempt from GST/HST. The remaining property would be taxable.

The Canada Revenue Agency provides specific guidelines for the wording, so this must be reviewed to ensure compliance with the legislation.

Angela Chang, CPA, CGA, is with MNP. For more information contact her at 604-685-8408 or angela.chang@mnp.ca. www.mnp.ca

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