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W

e have received many compliments on the quality of our English. We wish to apologise in advance for the incredible number of conjunctions that need to be used in the course of discussing tax law.

If you sell a piece of land, are you obliged to charge the Goods & Services Taxes? What happens if your property is owned in a company name? What about rental? If you rent your house out over Christmas, do you have to charge the tenant these taxes?

Generally, sales of buildings and land held by an individual for private residential purposes are exempt under the GST and QST rules. However, if the sale of land occurs in the course of carrying on a business, the seller is responsible for the collection of the taxes.

While an exemption exists for residential property, sales of undeveloped land are taxable. However, the sale by an individual of a piece of land out of a larger parcel does not necessarily oblige the vendor to charge the taxes. You must be careful though, because if two lots are sold, or if a number of subdivisions are created, the transaction will not be exempt. In such a case, the tax authorities can claim the 7% GST plus the 6.5% QST (7.5% from January 1, 1998) even on any parcel previously sold. Your actions, not your intentions, will be the basis of tax department decisions.

Often we come across circumstances where a large property is held by an individual's estate and the family needs to sell. Sometimes the neighbours are the ideal candidates for parts of this land. If you are planning such a sale, it might be possible to sell all of the various parcels to the interested neighbours jointly and let them split it up afterwards. That way, you have sold only one parcel, and you should be able to sell the balance to someone else without triggering a responsibility on your part to collect the taxes.

Where land is owned in the name of a company, the company is obliged to collect and remit these taxes. If the company owns a house or building used for residential purposes, this part and the related land may not be subject to the tax, but any excess land will be.

The rental of a residential property is exempt from the GST and the QST. However, where a property is usually rented out for less than 60 days*, it may be considered as commercial property in the same way that hotel rooms and cabins are not considered residential. In such a case, the transactions will not be exempt. Nevertheless, providing the operation does not generate in excess of $30,000 per year of revenue, there is no obligation to register for and collect the GST and the QST.

Each situation regarding real estate is different. In all cases we advise you to seek the advice of a tax professional first, rather than after, you sell or rent property. General rules, such as described herein may or may not apply in your specific case.

* A July 1997 modification to the Quebec Tourist Establishments Act obliges anyone renting, even his own home, or a room in it for a period of less than a month to obtain an operator's permit. This has nothing to do with the GST and the QST and is only an attempt on the Ministry's part to establish guidelines and standards. It is hard to see how this modification to the law will be policed however fines start at $640 for a first offence. Prepared in consultation with Jan Holland of Wagar & Holland, Chartered Accountants. (613) 678-5846

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