Mixed-Use Income Property and HST

 Mixed-use income properties typically have a residential and a commercial component. In these sales, only the commercial portion is subject to HST which can be avoided in certain cases.

On What Portion is HST payable?

A mixed-use property was sold under power of sale by the lender. Before closing the buyer was informed by his lawyer that he had to pay HST on 82% of the building because, as he understood, the town designated the property that way. He was surprised as the 2-storey building has a 3-bedroom residence on the 2nd floor and a commercial presence on 1st, a 50/50 split physically. This suggested HST would be payable on the commercial 50% and questioned paying HST on an additional 32% of the property.

In our experience the seller’s usage of the property determines how much of the property is subject to HST. In this case, however, the seller was the lender.

Who Designates the Portion that’s Commercial?

In calling the HST Hotline, the rep said that, provided it’s fair and reasonable, the seller designates how much of the property is commercial, not the municipality. So the designation by the seller can become an important consideration. Another real estate lawyer had never heard of a municipality establishing how much of a property is subject to HST.

Assessments are for Property Tax Purposes

In talking with the buyer again, he was further told that once he owns the building, he can apply to MPAC, the assessment corp., to change the usage to 50% commercial, though this could take a while. He can then apply for a rebate on some of the HST paid.

Once again we called HST. Again they reiterated that so long as it is fair and reasonable, the seller can apportion the commercial usage in the Agreement. The HST department does not rely on how the property is designated for HST purposes based on the assessment of the property. That is strictly for property tax purposes. HST relies only on the usage that the seller applies to the property at time of sale. In the case of a power of sale, the seller can designate how much of the property is commercial, again provided it is fair and reasonable.

Can the Buyer Receive a Rebate After Closing?

Once the buyer closes on the sale and applies to the assessment office to have the property re-designated to a 50% commercial usage, can he apply for a rebate? According to the HST representative, the Seller, as mortgagee, and/or the buyer’s lawyer is playing it safe by using the assessment department designation. Once the HST is paid, however, the buyer cannot get it back. Applicability of HST is based on usage at time of sale of the property, not the use the buyer puts it too after he owns it or any change in designation by the assessment corp.

When is a Rebate Applicable?
Generally a Rebate is used where the buyer has paid HST on a purchase that is HST exempt. As an example, zero-rated basic groceries: if you are mistakenly charged HST on basic groceries, you can file for a rebate of HST tax paid. HST is based on usage at time of sale of the property, not the use the buyer puts it too after he owns it or any change in designation by the assessment department.

Blog Archives

Tags