This article by David Sherman was published in the Summer 2007 edition of LAWPRO Magazine under the title “How Not to Get Sued Over the GST“. He updated it in September 2016.

Are you at risk of being sued over an HST mistake? If you practise real estate law, commercial litigation or corporate/commercial law, the answer is “yes.” As counsel who has been called on by LAWPRO, and in writing commentary on all GST/HST-related case law, I have seen numerous GST- or HST-related negligence claims, many made against lawyers by clients who have received an unexpected HST assessment from the Canada Revenue Agency (CRA). The examples below are fictitious scenarios based on that experience and illustrate some common areas where a lawyer can unexpectedly get into HST trouble.

The GST/HST legislation is found in the Excise Tax Act (ETA). (The HST is basically the GST applying at 13% in Ontario instead of 5%.)

Real estate law

The GST/HST rules for real property are extraordinarily complex. Although the general rules are often simple to understand, there are myriad exceptions and special cases in the legislation. You should assume that you need to check the rules carefully on all but the simplest of transactions.


Everyone who practises real estate law knows that you don’t collect HST on a sale of commercial property to a GST/HST-registered purchaser. But does that mean the sale is not taxable?

George is a real estate lawyer. His client, Tony, comes to him with an offer to review. Tony wants to sell a commercial property for $1 million. The purchaser’s offer is for $1 million, on an OREA standard Agreement of Purchase and Sale form. The agreement states: “If HST applies, it is included in the price above.” Should George let Tony accept the offer?

NO. This is not an offer for $1 million. It is really an offer for $884,956 plus 13% HST. Because HST is stated to be included if it applies, HST of 13/113ths, or $115,044, is included in the $1 million.

If Tony signs this offer, he will have a nasty surprise on closing. Instead of $1,000,000, he will get less than $885,000.

Some lawyers think that the price is still $1 million because they believe HST does not apply on a sale to a GST/HST-registered purchaser. This is incorrect. HST does apply. The sale is taxable. However, under ETA subsection 221(2), the vendor does not collect the tax. Under subsection 228(4), the purchaser must “self-assess” and pay the tax directly to the CRA.

“But” – some lawyers say – “the purchaser doesn’t really pay the HST, because he has an offsetting input tax credit!” Yes, the purchaser has an ITC, and that will usually net his payment obligation down to zero. But the sale is still taxable.

For a case confirming this interpretation, see Bumac Properties Inc. v. 1221 Limeridge Inc., [2001] G.S.T.C. 4 (Ont. SCJ, Fedak J., Dec. 4, 2000).


George, the real estate lawyer, has another client, Laura, who is selling a commercial property for $1 million. The purchaser is “12345678 Ontario Ltd.” The purchaser’s lawyer has faxed George a 2013 letter from the CRA confirming that the company is registered for GST/HST. George knows that, on closing, his client doesn’t need to collect HST because the purchaser is registered. Is George right?

NO. The registration could have been cancelled, or the letter could be a forgery. In either case, if the purchaser is not currently GST/HST-registered, Laura will be assessed for $130,000 in unremitted HST, plus interest and possibly a penalty, once this transaction comes to the CRA’s attention. There is no “due diligence” defence to such an assessment. (If Laura is not filing GST/HST returns, there is no time limit on such assessment – it could happen 15 years from now!)

George should check the CRA’s GST/HST Web registry,, to ensure that the purchaser really is registered. And if the purchaser’s full legal name as registered is longer than 10 characters including spaces, George should also phone the CRA at 1-800-959-5525 to get additional confirmation, since the Web Registry will claim that a person is registered to the number stated as long as the first 10 characters match. (For example, searching for my registration number 123965659 works as “David M Sherman”, but also works as “David M Shawinigan”.)

George should also determine, if possible, that the purchaser is not acting as a bare trustee for another party that is not GST/HST-registered. If it is, the law is unclear as to whether Laura must collect HST.


Poor George has another client, Jimmy, who works in the construction industry. In 2014, Jimmy built a new home for his family, and they moved in. They decided they didn’t like the home, so they built another home and moved there a year later, in 2015. Happily, Jimmy sold the first home for a nice gain.

Now they’ve decided to move again, and Jimmy has built a third home where the family will move. He has an offer on the second home, and wants George to handle the sale. Does George have to worry about the HST?

YES — but not in the way you may be thinking. There is no HST to collect on the sale of the second home. Because it’s been lived in, its sale will be HST-exempt. (ETA Schedule V, Part I, section 4.)

However, George should be warning Jimmy about a very serious problem Jimmy is facing. If the CRA considers that he’s a “builder” (ETA subsection 123(1)), who built the homes with the intention of selling them, he will be assessed for HST on the value of the home upon moving into each home. This is the so-called “self supply” rule. Jimmy may be facing a very substantial HST assessment, plus interest and penalty, on all three homes. The onus will be on Jimmy to prove that his family really intended to live in each home for a long time, and only sold because of unexpected circumstances.

To make matters worse, the CRA will also assess Jimmy for income tax on the profits from each home. The “principal residence” income tax exemption applies only to capital gains, and Jimmy’s gains will be considered business profits, not capital gains. The CRA will likely assess a 50% gross-negligence penalty as well!


It’s George again. His client, Millie, is selling a piece of vacant land. She comes to George to handle the sale. George tells Millie that since the land is vacant, she doesn’t have to collect or remit GST. Is he setting himself up for a call to LawPRO?

MAYBE. A sale of vacant land may well be exempt, but George needs to check a number of facts first. He should review ETA Schedule V, Part I, section 9, which provides the exemption. Examples of facts which may cause the sale to be taxable:

  • Millie has been using the land for profit.
  • Millie subdivided the property 45 years ago.
  • The property is actually owned by Millie’s corporation.
  • Millie holds title to the property, but as a bare trustee for a corporation.

If tax applies and George doesn’t advise Millie to collect and remit HST, the CRA may catch up with Millie years down the road, and assess her for the HST plus substantial interest and possibly a penalty. Guess where she’ll look for recourse?

Commercial litigation

Sally is a litigation lawyer. Her client, MCo, had an agreement to provide services to JCo. JCo has terminated the deal. MCo was entitled to $10,000 monthly, or $50,000 if JCo terminated early. Sally files a claim against JCo for $50,000. JCo quickly comes up with a cheque for $50,000 to stop the litigation, and seeks a release and withdrawal of the claim. What’s wrong?

Sally has forgotten the HST. If she accepts $50,000 for MCo, MCo will only get $44,248. ETA section 182 deems a settlement (or Court award) received by a supplier to be a “GST-included” or “HST-included” amount, and MCo will have to remit 13/113ths of the settlement as HST it is deemed to have collected.

Sally must make sure to claim $50,000 plus $6,500 for the HST, and to accept a settlement of $56,500 if her client is to be made whole.

So what does the poor sole practitioner do?

Unfortunately for the non-specialist, you’re stuck with the HST – and if you don’t advise your clients about it in cases where it’s relevant, you may find yourself making a call to LawPRO.

Although you don’t need to have all the answers on HST, you have to know what the issues are, and when to call a HST specialist, or at the very least to tell your client to consult their accountant.

At a minimum, you should have the GST/HST legislation and CRA’s GST/HST publications. If you know what section or document you’re looking for, use for the legislation and for the publications (both free). However, these sites are not indexed or annotated, so you may find yourself lost much of the time.

For fully annotated and indexed legislation, see The Practitioner’s Goods and Services Tax Annotated (published twice a year), and for annotated and indexed CRA publications, see GST Memoranda, Bulletins and Policies (publish annually). Both are written by me and published by Carswell.

Another resource you may find useful is my book The Lawyer’s Guide to Income Tax and GST/HST, published annually or biannually by Carswell. It’s full of answers to the questions that come up in each area of practice.

For detailed analysis of every provision of the legislation, see the 21-volume Canada GST Service (online at

And don’t make any assumptions about how the HST will apply before you check the legislation!

Categories: Real Estate, Corporate Law