Don’t Pay GST on Your Canmore Investment Property

So, you’re thinking about investing in Canmore real estate, and you’ve been seeing a lot of buzz about GST. So, what is it, and how does it apply to you?

In this article, we’ll give you a brief overview of the rules and how you can defer it. Please note that we are not accountants and this should be used as a reference for discussion with your certified advisor. 

The government has made it more complicated than it needs to be, so we’ll do our best to explain it clearly, and we’d love to answer any follow-up questions you might have. Refer to our contact information at the end of this article if you’d like to speak with us directly.

Investing in Canmore

There’s been a lot of talk about Canmore recently. People are calling it a hidden gem, nature’s paradise, and a base camp for adventure. It’s all of that and more.

Being just 45 minutes from Calgary, bordering Banff and being a hop, skip, and a jump away from four top-rated downhill ski resorts, everyone wants to visit Canmore, and a lot them want nothing more than to stay and make Canmore their permanent home. And, we can’t say we blame them. 

Real estate prices are almost universally on the rise as the global economy continues to recover and strengthen after the financial crisis. Between 2016 and 2017, Canmore home prices rose 12%, and we expect this trend to continue. Now’s the time to invest before prices jump even higher.

GST on Rental Properties

So, what exactly is GST, and how does it affect your rental property?

GST stands for Goods and Services Tax. Most homes purchased in Canada are subject to this tax, especially if it’s new construction or a property that has been used for short term rentals. The provincial rate in these cases is 5%.

It should be noted that not all vacation rentals are subject to GST. When taxable revenues are less than $30,000 or when the home will be primarily used as a residence and rented on a short term basis for less than 50% of the previous year then you likely won’t need to register to pay this tax. 

However, if the home is used for both purposes equally (or close to it), then the tax may be applicable. The taxability is determined on a case-by-case basis.

The concept and rules can get complicated, especially since every case is different. Not every vacation rental property even needs to register, but there’s one concrete reason you’ll need to register for GST:

• Revenues are equal or greater than $30,000 in a single calendar year
  or 
• Revenues are equal or greater than $30,000 over four consecutive quarters

There are two sides to this tax: the sales side and the expenses side. When you sell a good or service, you collect the tax, and it’s referred to as GST-collected. Conversely, there’s an ITC or input tax credit, which is a credit for incurring an expense in the vacation rental business.

Deferring GST on Your Canmore Investment Property

If you’re buying a vacation property, often advisors suggest registering for GST and then deferring it. The idea behind this advice is that you don’t pay any tax until you sell the property. There is conflicting advice on the wisdom of this decision, but in general, it makes sense to defer a tax as long as possible. 

The reason we often recommend deferring GST is that you get to avoid adding on another fee to your home purchase. However, as home prices rise in Canmore, and when the GST does become due, it’s taxed at the current market value of the property, which could be a substantial difference. For this reason, it may make sense to pay the GST upfront. Again, it depends on the value of the property, how you intend on using it, and when or if you plan on reselling it. 

Also, if you decide to pay the tax upfront, then you can apply for a tax credit at the end of the year with CRA (Canada Revenue Agency). 

An important consideration to note is that in order to be eligible to continue deferring GST, the property must be rented for at least 90% of the year, and personal use cannot exceed 36.5 days.

For Follow up Questions:

Navigating GST is a tricky subject, and because every situation is different, we are not able to provide universal advice or recommendations. However, we’d be happy to address individual questions if you have them. When working with Devin Stephens, you can expect integrity, superior service and experience. Please contact Devin Stephens at 403.688.7769.