HST in Real Estate

Buying a New Home and the HST

 Today’s post come’s from the real estate lawyers at Yosowich Patel LLP. Understanding HST when it comes to buying a new home can be a daunting task. If you have any questions regarding HST that are not answered in this post, feel free to reach out to them. 

So you decided that you have enough of renting and now you want to purchase a home. The glossy brochures provided by builders of new construction are too good to pass up, and soon enough you have your eyes set on a gorgeous detached new home. But wait! While the house may look amazing in the slick marketing materials and you may believe that buying a new home means that it will come without any of the issues normally attached to resale homes, don’t be so sure.

New construction homes have a whole slew of problems that are unique to them, and these issues are something that should be discussed in further detail with your real estate lawyer. One of the issues is the applicability of HST to your new home.

HST

Taxes, again! We can’t seem to escape them! One thing that distinguishes new homes from resale is the attachment of HST. You see, when you buy new, you have to pay HST whereas with resale homes you don’t. Doesn’t seem fair, does it?

Here’s how it works: say you buy a new home for $300,000.00. Well that’s not actually the price of your home. It’s actually higher than that. The true price would have the full HST amount included in it, whereas the $300,000.00 only has a part of the HST included. Why is that? Because you may be entitled to an HST rebate.

The builder assumes that you will qualify for the HST rebate and “holds back” a portion of the HST that may be applicable for a rebate. So the rebate has already been included in the $400,000.00 sale price.

In other words, most of the builders include the rebate in the purchase price and then have you assign the rebate back to them on the closing of your real estate purchase transaction.

So how does the rebate work and who qualifies for it?

Both the federal (for simplicity’s sake let’s call it the GST – 5%) and provincial (HST – 8%) taxes are eligible for a rebate. The Ontario Housing Rebate is calculated as 6% of the Ontario HST on the first $400,000. It doesn’t matter how much your house costs. You will basically pay 2% HST on the first $400,000 of your house and then 8% HST for the remainder.

The maximum amount of the rebate allowed for the HST is $24,000.00.

The GST works a little differently. For GST and a purchase price up to $350,000.00, you are credited 36% of the GST (5%) portion paid. The rebate starts dwindling once you go over $350,000. There is a sliding scale from $350,000 to $450,000. After $450,000.00, you do not receive an additional rebate.

If you are like me, your math is terrible and you have no idea whether you are actually saving money or not. Let’s use an example: your new house was purchased for $300,000.00. With no rebate you are looking at $39,000 in the HST.

Now let’s apply the rebates:

PST – $300,000 x 6% = $18,000.00

GST – $300,000 x 5 x 36% = $5,400.00

Total = $23,400.00 in rebates!

You still pay $15,600.00.

Great! Sign me up! Well first you have to qualify.

In order to qualify for both rebates, your new home must be your primary residence or you must show evidence that you have rented out the new home for at least a year.  Say you have every intention of moving into the new home on the closing date of your transaction. The builder will include the rebates into the sale price of your new home and they will then apply to the Canada Revenue Agency for the refund. However, before the builder takes this step, they will ask you to sign a document saying that you will move in.

If you plan on renting out the property, then you have to show the CRA that you closed the deal as well as sending them a copy of your lease agreement.

So you move into your new home and you like it for awhile, but 6 months in you decide this isn’t the place for you and you move out or you decide to sell your property. Now you’ve kept the HST rebate and you’re thinking the CRA will never find out what you did. Not so fast! When it comes to taxes, we both know the CRA can be super sleuths, and when it comes to the HST rebate, they are not surprisingly diligent. One easy way for the CRA to find out you no longer live at the property is a tenant who files their income tax using your address! So please don’t take chances. Be upfront with the CRA! Even if it was never your intention to move into the property, you are better off paying the HST.

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