We don’t usually associate paying HST with purchasing a home or condo that we intend to live in. However, when purchasing a pre-construction unit as an investment, its important to understand the HST implications before signing the Agreement of Purchase and Sale (or at least before the cooling offer period expires).
When a purchaser views a pre-construction unit in a builder’s showroom, or through a realtor, HST is included in the “sticker price” (meaning the price that is shown to the prospective purchaser has an HST component built into it). On closing, the builder is then required to pay the HST collected from the purchaser to the Canada Revenue Agency. In most instances, the purchaser doesn’t even realize that they paid HST on the unit. The purchaser only knows that they paid the “sticker price” + closing costs + land transfer tax.
With respect to the HST component of the “sticker price”, the purchaser of a residential unit is entitled to a rebate of a portion of it (if certain conditions are met), which usually ranges between $24,000 and $30,000 dollars. A worksheet to determine the exact amount of the rebate can be found here: GST190 Calculation Worksheet. In the Agreement of Purchase and Sale between the builder and the purchaser, the purchaser assigns the rebate to the builder. Essentially, the “sticker price” equals: the price of the unit + HST – the rebate.
However, if the purchaser does not reside in the unit for one year from the date of closing, the purchaser is usually not eligible for the rebate1, which results in the builder not being able to claim the rebate on the purchaser’s behalf. If the purchaser is not eligible for the rebate, the purchaser must pay the builder for the amount of the rebate on closing, in addition to the “sticker price” – this is a condition of the Agreement of Purchase and Sale. Under these circumstances, the price paid on closing would be: the “sticker price” + the rebate + closing costs + land transfer tax.
Fortunately, all is not lost for purchasers who are investors. In most instances, the CRA will reimburse the purchaser for the amount of the rebate, if the purchaser produces a residential lease for the unit of not less than one year and submits it to the CRA with the appropriate rebate application within the specified time period.
If you have any questions regarding the new home HST rebate, or your eligibility for it, please contact Scott A. Lennox, Real Estate Practice Group Leader at 1-647-361-3085 or firstname.lastname@example.org.
1 There are exceptions, such as having a direct family member reside in the unit.
— This entry was authored by Scott G. Lemke
Information herein is NOT legal, financial or investment advice. Should you have questions with respect to the information herein, please contact Lemke Law Professional Corporation