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Understanding HST on Vacant Land Sales in Ontario

When it comes to the sale of vacant land in Ontario, the application of Harmonized Sales Tax (HST) can sometimes
become a confusing affair. This tax is typically applied in four scenarios related to property purchases:
1. When the property is residential and is a new build or has undergone substantial renovations.
2. When the property is residential but also includes a non-personal use segment, such as vacant land.
3. When the property is commercial.
4. On various services related to the property purchase, such as broker commission fees and home inspections.
In this article, we’re going to break down the instances when HST applies to vacant land sales in Ontario.

Vacant Land and HST: When Does it Apply?

The application of HST on vacant land primarily depends on whether the use of the land, prior to the sale, was for
personal or business purposes.
Here are the situations where the sale of vacant land will attract HST:

    • If the land is a capital property used primarily in a business, or the sale of the land is part of a business
      transaction.
    • If the land has been subdivided into more than two parts, sales of the subdivided portions are taxable unless sold
      to a relative for personal use.

HST Exemptions on Vacant Land Sales

While HST applies to many scenarios, there are also certain situations where vacant land sales are exempt from HST:

  • If the seller is an individual and the land was maintained for personal use.
  • If the land is being sold to a relative (including a former spouse or common-law partner) for personal use after
    being subdivided from another parcel.
  • If you have only ever subdivided your parcel of vacant land into two parts, the sale of either part is exempt from
    HST.

Purchasing a House on Vacant Land: How Does HST Apply?

If you are purchasing a house that sits on a large portion of vacant land, HST will only apply to the non-personal use
portion of the land.
In other words, when a sale of vacant land includes a residence, the sale is viewed as two separate transactions:

    1.  The sale of the portion that includes the house, as well as the land necessary for the use and enjoyment of the
      house.
    2.  The sale of the remaining land.
      HST is applicable on the portion of the vacant land that was not personally used by the owner of the property, even if it
      includes residential property. If it can be shown that the seller personally used the vacant land, then no HST will be
      applied to that portion.

Determining Personal Use of Vacant Land

The test for exempting vacant land from HST due to personal use considers the use of the land before the sale, not the
intended use after the sale. This means that the purchaser must look at how the seller used the land before it was sold
to determine whether HST applies.

Mechanism of Paying, Collecting, and Remitting HST

The mechanism of dealing with HST in property transactions varies based on whether the transaction is subject to HST:

  • If HST is included in the Agreement of Purchase and Sale, it is payable in addition to the Purchase Price and is
    collected by the seller.
  • If the transaction is not subject to HST, the seller will certify this to the buyer on closing.
  • If HST applies to the transaction, the seller will collect the HST on closing unless the buyer provides a copy of their
    HST registration, warrants that they are a registrant, and will self-assess and remit the HST payable while
    indemnifying the seller for any HST payable.