HST on Vacant Land Sales
Depending on if the vacant land was used for business purposes or by an individual for personal use can affect HST after a sale. Learn more about this here!
By Emily Southey | 6 minute read
There are multiple types of land available for sale in Ontario. The three most common types are raw land, vacant land, and zoned land. Vacant land is land that is serviced or partially serviced, meaning it likely already has certain utilities on the premises, though they may be limited. Such utilities may include water, electricity, septic, road services, or even pre-existing developments (though it is unlikely to contain any permanent structure). Lastly, vacant land is privately owned. In contrast, raw land is land that has never been developed and therefore has no pre-existing developments, structures, or utilities. Meanwhile, zoned land is land that has already been designated for a specific use (for example, commercial, industrial, agricultural, residential, and more). Any time you buy a plot of land in Ontario, you must check the zoning laws to ensure you can use the vacant land the way you wish to.
HST on the Sale of Vacant Land in Ontario
Selling vacant land in Ontario can be tricky, largely due to the tax implications of doing so. For example, many factors are used to determine whether HST is applicable to the sale of vacant land. Therefore, understanding what these factors are and the circumstances in which you will need to pay HST is important.
Ultimately, vacant land sales can either be subject to or exempt from HST under the Excise Tax Act of Canada. This Act details the conditions in which HST is applicable to sales of vacant land and the requirements that the land must meet to be exempt from HST. For example, the sale of your vacant land may be subject to HST if it falls into one of the following categories:
- The vacant land was used primarily for business purposes, where the owner had a reasonable expectation of profit. (Please note that the sale of the land does not need to be the source of the profit for the business; the land just needs to have been primarily used by the business.);
- The sale of the vacant land was finalized in the course of a business of the owner. Factors that may be considered include how often the owner is involved in these types of sales and the amount of time and effort put toward activities related to the sale of the vacant land; and
- The vacant land was created by the owner by subdividing one parcel into more than two parts (excluding any parts given to an authority with the right to expropriate).
In contrast, the sale of your vacant land might be exempt from HST if it meets any of the following qualifications:
- The vacant land was primarily used for personal use by the owner;
- The vacant land was an adventure or concern in the nature of trade by the owner (that is, when an owner had a primary or secondary intention to resell the land at a profit at the time of purchase, but does not regularly engage in such activities as a business and did not dedicate a significant amount of time and effort to activities related to selling the land or preparing it for sale); and
- The owner subdivided a parcel of land into no more than two parts or, where the owner subdivided a parcel into more than two parts, it was for a transaction where the owner was selling a part to a relative for personal use.
HST Reporting on Vacant Land Sale
It is important to note that the burden of collecting and remitting HST on the sale of vacant land is the responsibility of the seller (unless the buyer is an HST registrant). If the buyer is a registrant, they must self-assess the tax and remit the HST owing to the Canada Revenue Agency (CRA) via their HST return. However, even in this scenario, it is still the seller’s responsibility to ensure that the buyer is a registrant and that their HST number is valid before allowing them to self-assess and remit HST to the CRA. Therefore, a seller must obtain a valid HST number from the buyer. If they fail to do so and the buyer’s number turns out to be invalid, the seller may be held liable for HST remittance under the Excise Tax Act.
“You may have to pay HST on your vacant land sale if the land was primarily used for business purposes, the sale of the vacant land is in the course of business, or if the land was subdivided into more than two parts.”
Capital Gains Tax on the Sale of Vacant Land
Another type of tax to watch out for when selling vacant land is capital gains tax. The reality is that you may have to pay capital gains tax when selling land in Ontario. Capital gains tax is applicable on a wide range of real estate properties, from commercial offices and residential homes to vacant land. However, some real estate sales are exempt from capital gains tax. For example, if you are selling vacant land that was your primary residence, the sale will not be subject to capital gains tax (that said, if the land is vacant, it likely was not your primary residence). Alternatively, if the vacant land was purchased as an investment and was rented or used for business purposes, capital gains tax will likely be applicable. Please note that capital gains tax is applicable to any amount of money earned above the original purchase price, no matter how small. That said, not all of your gains are taxed. Rather, only 50% of the total gains realized are taxed. That 50% is considered taxable income by the CRA and will be taxed at your nominal income tax rate.
Land Transfer Tax on the Sale of Vacant Land
Good news! Land transfer tax is one type of tax that you likely will not be responsible for when selling vacant land. The Ontario Land Transfer Tax is generally paid for by the buyer in all land sales or transfers, including the sale of vacant land. Therefore, if you are selling vacant land rather than buying it, you will not need to worry about paying land transfer tax. You likely already paid land transfer tax when you initially bought the property, and now it is the new buyer’s turn.
r important and common type of real estate contingency. This condition stipulates that the real estate transaction will only go through if the buyer’s financing is approved (in most cases, this means that the sale hinges on the buyer’s ability to obtain a mortgage loan from a mortgage broker or lender). Therefore, it protects the buyer in the event that they do not qualify for a mortgage after making an offer. Financing contingencies usually include a time frame that the buyer has to get approved for their mortgage. Time frames vary but are typically five to 14 days from the date of the offer.
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Frequently Asked Questions
Do I have to pay HST on vacant land?
The answer is maybe. In most cases, sellers do not have to pay taxes on the sale of vacant land. The sale of vacant land is HST exempt if the vacant land was used for personal use, if the parcel was subdivided into multiple other parcels but the seller was an individual and the land was sold to a relative for personal use (for example, a family member including a former spouse or common-law partner), or if you had never previously subdivided or severed the land and you subdivide it into no more than two parts. Conversely, you may have to pay HST on your vacant land sale if the land was primarily used for business purposes, the sale of the vacant land is in the course of business, or if the land was subdivided into more than two parts (with the exception of if it was then sold to a relative for personal use).
How do I know what taxes I owe when selling vacant land?
The best way to determine what tax(es) your vacant land sale is subject to is by contacting a real estate or tax professional. They can assess your situation and help you identify whether taxes, like HST and capital gains, will apply to the sale of your vacant land.
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