Building Bravery or Business Blunder

Building Bravery or Business Blunder

A client approached me the other day and asked me if he had to pay the HST on a purchase of a commercial building.  This brought to my attention that many of my clients ask the same question.  I hope realtors and purchasers of businesses and/or commercial buildings don’t blunder.

Who wants to pay the high HST amount if they can avoid it?

As you can imagine, the HST portion on a commercial building or on a purchase of a business, can be very large especially when the business or property is in the millions of dollars.  Even though the HST is deductible as an input tax credit for those registered for HST, the purchaser needs to finance it and there is a cost to the financing, especially if there is a long delay in getting the refund from the government.

For those who are not familiar with HST, the business remits the net difference between what they collected and what HST they paid.  For example: Let’s say a business had sales of $1,000 and collected $130 of HST.  They had $600 of expenses, which they paid $78 of HST.  They remit the remaining amount ($130 – $78 = $52) to the government.  This is called an HST return and the date due depends on the situation of the business, some monthly, some quarterly, and some yearly.

Both registered for HST?

Canada Revenue Agency (CRA) recognises the challenges of finding the extra money for the HST portion of a purchase so they created a provision that allows purchasers to be exempt.

Purchase/Sale of a business

For the purchase of a business, use form GST44, which allows you to be exempt from paying the HST for the acquisition of a business or part of a business.  Have the offer include a provision for this form and that both of you, the seller and buyer, agree to the transaction.  Fill the form and ensure each of you have a copy.  Both of you send this form to your tax centre when filing your next HST return.

Purchase/Sale of a commercial building

For the purchase of a commercial property for the use as a commercial activity, enter the amount of HST on Line 205 of your HST return and include this amount in line 108.  Have the offer include a provision that both of you, the seller and buyer, agree to the transaction.  File your return.

I hope business owners don’t finance the HST on a purchase of a commercial building or business.

Keep it simple!