HST Rebate and Investment Property

HST on new construction condos is a bit confusing and there is this “rebate” that we’re supposed to get back. What is it all about?

In Ontario all resale homes are exempt from HST, but not new construction condos or homes. When you purchase a pre-construction condo the builder charges you HST and builds it into the price that you pay. They also do not charge you all of the HST. The Government provides a “rebate” on the HST to the owner provided the unit is to be owner occupied. There is leniency in this rule as you are allowed to have the home occupied by any immediate member of your family like parents or son or daughter (blood relation), not uncles or cousin. The “rebate” typically works to approximately 60% of the 13% HST payable. Most builders will have the buyers sign that rebate paid back to the builder upon closing. The rebate is allowed on properties up to $450,000 only. Really?

What happens if you are really an investor and not owner occupied purchaser?

You and in turn the builder now do not qualify for the HST rebate as the entire 13% of the net purchase price is payable to CRA. At this point the builder will ask you to pay that “rebate” part of the HST to them.

Example:

Let’s say a pre-construction condo is for $100,000 NET.

The builder’s price to you is $105,239.

This is the price on the Agreement of Purchase & Sale.

Net:            $100,000

HST 13%: $13,000

This how the 13,000 HST breaks down:

Rebate allowed:      $7,761.00

Net portion of HST: $5,239.00

The builder owes $13,000 HST to CRA but charges you only $5,239. This is the builder’s price to you $100,000 + $5,239 = $105,239.

The builder is allowed to collect the HST rebate of $7,761 (from the $13,000 payable).

If you lose the rebate qualification, the builder will ask for the HST rebate or there will be a demand letter from CRA for this amount.

But, all is not lost. If you close the property as an Investor you are still entitled to claim that “rebate”. It just takes a bit more time and additional paperwork. You need to file for the rebate claim (Federal and Ontario) and provide the following:

  • Purchase Agreement
  • Statement of Adjustments from your closing
  • copy of lease agreement to show it is a rental property
  • copy of Insurance policy
  • GST/HST claim forms

Here’s one word of caution when getting a mortgage. If you are closing the property as occupied owner and put a third party’s name on the mortgage (like Uncle or friend) because you did not qualify for the mortgage, then the rebate can be denied. In such case please discuss with your lawyer to make sure.

In either case, the end result is the same. The Investor option has you pay the entire 13% at closing and then file for rebate whereas the occupied owner option has you pay only the net part of the HST at closing.

Disclaimer:

I am not a tax expert and do not warrant the accuracy of the information contained herein. I recommend that you get independent counsel from your accountant and/or attorney.