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Increase in the QST Rate: Real Estate Sector

Taxable supply of immovable property by way of sale

A taxable supply of immovable property by way of sale is subject to Québec sales tax (QST) at the rate of 8.5% if the agreement in writing for the acquisition of the property is entered into after December 31, 2010, and ownership and possession are transferred under the agreement after that date. If the agreement in writing was entered into before January 1, 2011, the supply is subject to QST at the rate of 7.5%.

An agreement in writing includes, among other things, an agreement preliminary to a notarized contract. For example, an acceptance in writing of an offer to purchase immovable property constitutes an agreement in writing. In that case, the date the acceptance of the offer to purchase is signed is the date the agreement is entered into.

If an agreement in writing is conditional, the agreement is concluded on the date it is signed and not upon the fulfillment or non-fulfillment of any condition.

Agreement in writing for the construction, renovation, alteration or repair of immovable property

A taxable supply made under an agreement in writing for the construction, renovation, alteration or repair of immovable property is subject to QST at the rate of 8.5% if the agreement is entered into after December 31, 2010. If the agreement in writing was entered into before January 1, 2011, the supply is subject to QST at the rate of 7.5%.

No special conditions apply to an agreement in writing for the construction, renovation, alteration or repair of immovable property, provided the agreement is indeed for such work. The QST rate applicable to the work is based on the date the agreement, in whatever form, is entered into, that is, the date it is signed.

Note that this rule does not apply to a supply of movable property that is subsequently incorporated into immovable property if no construction, renovation, alteration or repair work is being done when the movable property is supplied. The same is true with regard to a professional services contract, such as a contract with an architect to draw up plans for a real estate project or a contract with an engineer to supervise the work. In both of those cases, the rule applicable to movable property and services applies. Therefore, where consideration for a supply of movable property or for a supply of a service is paid or becomes payable after December 31, 2010, the QST rate is 8.5%.

Holdback under a contract

The QST rate applicable to a holdback under a contract for the construction, renovation, alteration or repair of immovable property is based on the date the agreement in writing in respect of the contract is entered into. Thus, the terms of payment and the date the holdback is paid or becomes payable do not affect the QST rate applicable to the supply.

Additional work or changes to work in progress

Where the parties to an agreement in writing for the construction, renovation, alteration or repair of immovable property agree to additional work or changes to work in progress that do not alter the substance of the contract, such work or changes are considered to be carried out under the original contract. Therefore, the date the initial contract was entered into determines the QST rate applicable to the additional work or to the changes to work in progress.

On the other hand, where the additional work or changes are substantial, such as the addition of a separate building not provided for in the original construction contract, the work is considered to be carried out under a new contract, not the original one. The QST rate applicable to such work is based on the date the new contract is signed.

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