As part of a commercial real estate sale transaction, our office often gets retained during the early part of the transaction in order to review the Agreement of Purchase and Sale (the “APS”).

One of the most important aspects of the APS that we lookout for is whether HST is “included in the sale price” or if HST is “in addition to” the sale price.

If it’s the former, the Buyer and the Seller have already calculated the HST as part of the total sale price and as such the Buyer will not be obligated to pay the Seller HST on top of the sale price at the completion of the transaction. The Seller meanwhile will be required to remit the HST portion of the sale price to the appropriate governing body post-closing and if the Seller fails to do so, the liability will be completely on the Seller.

However, if HST is “in addition to” the sale price, the parties have two options:

• The Buyer will either be obligated to pay HST on top of the sale price to the Seller at the completion of the transaction and after collecting said HST, the Seller will then be obliged to remit the HST that it collected to the appropriate governing body post-closing;

or

• The parties can agree that if the Buyer is HST registered, the Buyer as part of its closing documents may elect to provide to the Seller proof that the Buyer is HST registered; a declaration addressed to the Seller that the Buyer will self-remit for HST post-closing of the transaction along with an indemnity in favor of the Seller, as part of which the Buyer absolves the Seller of any responsibility of the requirement to collect and remit the necessary HST to the appropriate governing body.

If the latter option is chosen, it is imperative for the Seller to carry out its due diligence on the validity of the Buyer’s HST status and to ensure that the HST indemnity is being provided by the appropriate party.

Be on the lookout for a future blog post which will cover in further detail some of the other key items that are important to consider when accepting a HST indemnity from the Buyer for the HST self-remittance.

For more information about this topic, please feel free to contact one of our lawyers! Reach out to us at (905) 270-6660 or by email at info@kormans.ca.

Please note that it is very important to discuss all the tax implications of such transactions with your accountant / licensed tax advisors so that they may cover any non-legal aspects of this matter that our office does not advise on.