Q. I purchased a condo three years ago as an investment.  The closing is next month. I plan to sell the condo soon after closing. Last week, my lawyer informed me that I would have to pay additional GST on closing. I am a little confused.— Michael

A. Recent numbers indicate the Canadian real estate market is on the upswing, with price going up and number of sales increasing, much to the surprise of many industry experts. But for this trend to continue, our southern neighbour has to show more positive signs of an economic recovery.  This may not be soon, as the unemployment rate in the U.S. approaches 10 per cent, home foreclosures continue but have slowed, and debt reaches historical proportions. Can higher taxes be far behind for the U.S. and Canada?

With the help of a good lawyer, most new home purchases close without a hitch. On closing, generally owner-occupied home buyers have no further GST concerns. Financing arrangements are made based on purchase price and closing cost.

However, new home purchases for investment can be confusing for a novice.  The same GST rules do not apply for investors. On closing, the purchase price must be re-calculated and the buyer usually pays additional GST. Prepare to pay a few thousand dollars extra on closing. 

The investor has to do some tax follow up:

• The investor has two years after closing to apply for the GST rental rebate or lose it.

• Claim GST transitional rebate, if applicable.

• Report capital gain for the year property was sold.  Fifty per cent is taxable.

• Check for capital losses in prior years.

• Report rental income when filing tax returns.

Make sure you speak to a qualified expert who deals regularly with these transactions.

– Henry Choo Chong, CGA, can be reached at choochonghcga@yahoo.ca.