GST/HST Rebates for Non-Registrant Property Sales
When a person who is not registered for GST/HST (non-registrant) sells property and the sale becomes a taxable supply, the GST/HST consequences often appear out of nowhere. Many people learn about the GST/HST rules only after CRA reviews the transaction and determines them to be a builder and that tax was collectible or self-assessable.
Section 257 of the Excise Tax Act (ETA) exists to provide a rebate in these situations, but the scope of what can be claimed is far narrower than most taxpayers expect. A Toronto tax lawyer can review your situation to ensure that you are receiving the full rebate you are entitled to.
What Section 257 Actually Allows
Section 257 provides a rebate to a person who is not registered for GST/HST and who makes a taxable sale of real property. The rebate equals the lesser of the basic tax content of the property and the GST/HST that would have been payable on the sale.
Basic tax content is a technical concept defined in subsection 123(1) of the ETA. In simple terms, it represents the GST/HST embedded in the property itself based on tax paid when acquiring the property or making substantial improvements to it.
This means the rebate is tied strictly to the GST/HST built into the property’s value. It does not refund other expenses a seller incurs to complete the sale.
Why Commissions and Selling Expenses Are Not Recoverable
The most common misunderstanding concerns real estate commissions. Sellers often assume that because the commission was paid solely to complete a taxable transaction, the GST/HST on that commission should be recoverable. However, the definition of basic tax content makes it clear that only GST/HST paid on the acquisition of the property or improvements to it is included.
Real estate commissions, legal fees on the sale, appraisal costs, and similar selling expenses are considered costs of disposition, not acquisition. As a result, they do not form part of basic tax content and are excluded from the section 257 rebate.
This is a problem for many sellers who only become aware of the GST/HST rules after the sale has closed, the commission has already been paid, and the Canada Revenue Agency (CRA) audits them years later.
Why the Rules Feel Unfair
From a policy perspective, the rules create a clear fairness gap. If a seller had been registered for GST/HST, they would have been entitled to claim a rebate for GST/HST paid on commissions, staging costs, marketing fees, and legal costs. Because a non-registrant is not entitled to this, the seller is limited to the narrow basic tax content calculation. Two sellers making identical taxable sales can face very different outcomes solely because one of them happened to be a registrant.
The unfairness is particularly noticeable because many individuals are not required to register for GST/HST and sell a property believing that GST/HST does not apply. The result is that the taxpayer is required to remit GST/HST twice, once on costs to sell the property and then again to the CRA.. This is a common and frustrating scenario for taxpayers, and a Toronto tax lawyer sees this issue repeatedly in CRA builder audits.
Kirshen Tax Law Can Help
Understanding whether a real property sale is taxable, whether section 257 applies, and how basic tax content affects your rebate is essential for anyone facing GST/HST consequences on a sale. These issues often arise during CRA builder audits, where CRA reviews whether the seller should have charged GST/HST, and whether any exemption or rebate is available. If you are being audited, Kirshen Tax Law can assist in responding to CRA, challenging incorrect positions, and ensuring the correct GST/HST treatment is applied.
For help navigating GST/HST issues on a real property sale, dealing with a CRA builder audit, or assistance with a section 257 rebate, reach out for a free consultation with a Toronto tax lawyer and get clear guidance on your next steps.
Jeff Kirshen BA, JD (CA), JD (US)
Tax Lawyer | Founder, Kirshen Tax Law
Disclaimer
The content on this website, including articles and blog posts, is provided for general informational purposes only. It reflects the laws and regulations as of the date of publication, which may have since changed. This content is not intended to serve as legal advice and should not be relied upon as such. Tax laws and situations can be complex and unique to each individual. The information provided may not apply to your specific circumstances. For personalized advice regarding your tax or legal matters, we recommend consulting a qualified lawyer.