Selling a Vacant Lot as an Individual: When the Sale Is HST-Exempt, and the Severance and Business-Use Exceptions That Can Make It Taxable

Two empty lots can look identical from the street and still get opposite HST answers. The difference sits in the record of what happened on the land and how you have held it, and you are the one who has to fill that record in.

I’m Arthur Zhao, a broker with AZ Real Estate Partners at Bay Street Group Inc., Brokerage. Picture the moment the paperwork for a land sale starts: your lawyer or accountant slides a short questionnaire across the desk. When did you buy the lot? Was there ever a building on it? Did you sever it? Has anyone rented it? Are you registered for HST? Who is the buyer? It reads like admin. It is actually the HST analysis, written as questions. For an individual selling land, the Excise Tax Act does not ask what the lot looks like; it asks what has happened to it and to you. This article walks that questionnaire line by line so the answers you give are ones you understand. It covers individuals and personal trusts only, and it is not tax advice; your accountant signs off on the final answer.

Before line 1: whose questionnaire is this?

The exemption this article is about is Schedule V, Part I, s. 9(2) of the Excise Tax Act. Its opening words limit it to a supply of real property made by way of sale by an individual or a personal trust. A corporation selling land is not in this provision at all, so if the lot sits in a holding company, stop here and take that to your accountant.

A personal trust under s. 123(1) means a testamentary trust, or an inter vivos personal trust whose beneficiaries are individuals (contingent beneficiaries may also be charities or public institutions). For a testamentary trust, s. 9(1) treats the person whose death created the trust as the settlor, which matters on line 2.

Residency is not on this sheet. Section 9(2) does not distinguish between resident and non-resident individuals. A non-resident seller has separate income-tax obligations under a different Act, covered in our piece on selling after leaving Canada, and is not repeated here.

Line 1: Was there a house on the lot, and is it still standing at closing?

This line decides which rulebook you are in. A sale of a residential complex by someone who is not its builder is handled under s. 2 of Schedule V Part I, and s. 9(2)(e) expressly sends those sales away from s. 9.

The definition in s. 123(1) is built around a structure: “that part of a building in which one or more residential units are located,” together with the land immediately contiguous to the building that is reasonably necessary for its use as a residence (the definition also reaches mobile homes and floating homes). Reading that text, once the house has been demolished and nothing residential stands on the land, the lot no longer fits the definition. That is an inference from the wording, not a sentence the Act states, but it follows directly: no building, no residential unit, no residential complex. The sale then falls to be tested under s. 9.

CRA’s published position lines up with the timing. According to CRA GST/HST Memorandum 19.5 (paragraph 62), if land is not part of a residential complex immediately prior to the sale, it does not qualify for the exemptions that apply to a residential complex, and s. 9 may apply instead. CRA’s own example in that paragraph is land severed from a residential complex and sold separately; the demolition case rests on the definition itself.

So the entry on line 1 is not “Has there ever been a house?” but “What stands on the land on the day it is transferred?” A house knocked down last spring moves the lot onto the s. 9 track for this sale.

Line 2: Did you, or the person behind your trust, cut this lot out of a larger parcel?

Paragraph 9(2)(c) takes out of the exemption a supply of a part of a parcel of land, which parcel the individual, trust or settlor of the trust subdivided or severed into parts. Read the wording closely: the trigger is a severance done by the seller (or, for a trust, the trust or its settlor). A lot that was already a separate parcel when you bought it is not caught by (c) on the words of the paragraph; whether anything else on this sheet applies is a separate question.

If you did sever, two exits bring the sale back into the exemption:

• Exit (i), the one-cut rule. The parcel was severed into two parts, and you (or the trust or settlor) did not yourself sever that parcel from another parcel of land. Both halves of that sentence must be true.
• Exit (ii), the family-use rule. The buyer is an individual who is related to you (or to the settlor), or is your former spouse or common-law partner, and is acquiring the part for their own personal use and enjoyment.

One more rule for this line: where part of a parcel goes to a body that has the right to acquire it by expropriation, that part and the remainder are deemed not to have been severed from each other. A road-widening strip taken by a public authority does not count as a cut on this sheet.

Line 2 filled in two ways

Line 3: What was the land doing right before transfer?

Paragraph 9(2)(a) looks at a single moment: immediately before ownership or possession passes to the buyer. The sale is taxable if, at that moment, the lot is capital property used primarily:

• in a business you carry on with a reasonable expectation of profit; or
• if you are an HST registrant, in making taxable supplies of the land by lease, licence or similar arrangement (or a combination of the two uses).

Whether renting counts here depends on the definition of business. Under s. 123(1), “business” includes “any activity engaged in on a regular or continuous basis that involves the supply of property by way of lease, licence or similar arrangement.” Reading that definition together with (a)(i), regular or continuous leasing of the lot can amount to a business; whether it is carried on with a reasonable expectation of profit and whether the lot is used primarily in it are factual questions your accountant has to weigh. That chain is my reading of how the two provisions connect, not a CRA ruling on your facts.

Farm use has its own line. Schedule V Part I s. 10 exempts a sale of farmland by an individual to a related individual or former spouse or common-law partner where the land was used at any time in a farming business, was not being used in another commercial activity immediately before transfer, and the buyer is acquiring it for the personal use and enjoyment of themselves or a related individual.

Line 4: Are you in the land business, or did you elect to be treated as trading?

Paragraph 9(2)(b) removes two kinds of sale from the exemption:

• (i) a sale made in the course of a business of the individual or trust; and
• (ii) a sale made in the course of an adventure or concern in the nature of trade, but only where you have filed an election with the Minister in prescribed form.

The second item is the one worth noticing on a questionnaire. A one-off speculative purchase and resale of land is not taxable under (b)(ii) unless that election has been filed. If you have never filed one, the answer on this part of the line is no.

Two narrower carve-outs sit in the same list: (d) supplies deemed made under ss. 206 or 207 of the Act, and (f) a resale to a registered buyer within one year under a buy-back right, made with a joint election. If either might describe your file, your accountant needs the details.

If your plan is to build a house on the lot and then sell the house, the question changes from vacant land to builder status, which our article on selling a substantially renovated home walks through.

Line 5: Who is buying, and who sends the tax to CRA?

This line only matters if lines 1 to 4 have made the sale taxable. At Ontario’s rate, set by s. 165 and Schedule VIII of the Act, the tax is 13% of the consideration: 5% federal plus 8% for Ontario. On a hypothetical $800,000 lot that is $104,000.

• Default: s. 221(1) requires the person making a taxable supply to collect the tax as agent of the Crown. Being a small, unregistered seller does not take the tax off a sale of real property: s. 166 expressly excludes sales of real property from the small-supplier relief.
• Buyer registered for HST: under s. 221(2)(b), a seller of real property is not required to collect where the buyer is registered (for an individual buyer, provided the property is not a residential complex or a burial plot). The seller is also not required to collect under s. 221(2)(a) where the seller is a non-resident.
• Then the buyer self-assesses: s. 228(4) says that where tax is payable on real property and the supplier is not required to collect it, a registrant buyer acquiring primarily for commercial activities pays and reports it in the return for that period; any other buyer pays by the last day of the month following the month the tax became payable, with a prescribed return.

The buyer’s registration status is therefore a fact your lawyer will want confirmed in writing before closing, because it decides which side owes the remittance.