Hello fellow real estate investors and real estate agents,
Many investors and clients prefer buying brand new houses for obvious reasons. Out of the stack of legal documents the buyers are asked to sign, one of them is a declaration that the buyers or the buyers’ relatives are moving into the property. This allows the buyers to assign the right to claim HST rebate to the builders.
Many people are unaware that the builders’ posted sale price already accounted for the New Housing Rebate. Let’s illustrate using an example.
Purchase price before HST = $300,000
HST at 13% = $300,000 × 13% = $39,000 (Federal portion = $39,000 × 5 ÷ 13 = $15,000; Ontario portion = $39,000 × 8 ÷ 13 = $24,000)
HST rebate Federal Portion = $15,000 × 36% (up to maximum of $6,300) = $5,400
HST rebate Ontario Portion = $24,000 × 75% (up to a maximum of $24,000) = $18,000
Builders’ advertised price is usually = $300,000 + $39,000 – $5,400 – $18,000 = $315,600
In most cases, the builders take on the responsibility to claim the HST rebate. Canada Revenue Agency (CRA) allows the builders to claim the HST rebate back on behalf of the property owners provided that the property owners are moving into the newly constructed properties. If you’re experiencing trouble with the CRA regarding HST, you might want to get a tax lawyer onside.
As a result, out of the hundreds of pages of documents you are required to sign when you purchase a new home, there is a document relating to you declaring that you are going to move into the property.
What if you clearly know that you are buying for the purpose of investing?
CRA also offers the same amount of HST rebate called GST/HST New Residential Rental Property Rebate. The only difference between this rebate and the New Housing Rebate is that the investors are not allowed to assign the right to the builders to claim the HST rebate on behalf of them.
In another words, when the deal is closed, the investor has to pay the builder the purchase price plus the full HST. In the example above, it is $300,000 + 39,000 = $339,000 instead of $315,600.
The GST/HST New Residential Rental Property Rebate allows the investors to apply for the HST rebate, same amount as the one available under the New Housing Rebate, provided that you have a one year lease agreement signed.
In our example, the same amount of $5,400 Federal rebate and $18,000 Ontario rebate are refundable provided that you have a one year lease agreement signed.
Once you fill out the form, you are required to attach a copy of the lease agreement, a copy of the statement of adjustments, the agreement of purchase and sale together with the application form and submit it to the government.
My experience with the process is that it would take about 2 to 3 months turnaround time and the government will send you the money directly.
What if you are planning to flip the new property only?
There is much media coverage about the CRA going after taxpayers who claim to move into the newly constructed house but didn’t. They assigned the rebate to the builder but sold the investment properties before or shortly after closing.
Unfortunately, the taxpayers are then liable to repay the CRA for the HST rebate and they are not eligible to claim the GST/HST New Residential Rental Property Rebate.
Until next time, Happy investing!
Cherry Chan, your real estate accountant
A Little Know Secret About HST Tax and How it can Impact Your Real Estate Business
[…] Note that a partial relief is available by the government for qualified investors who rent out the property to a tenant for a long-term residence (more than one year). HST rebate is available for houses less than $450K. The application process is the same as if you were to purchase a new house. […]
Colin C
Hi Cherry,
Do sole proprietors need to adjust their UCC on building when they receive the NRRP? Tax guide only mentions making adjustments for partnerships.
Cherry Chan, Real Estate Accountant
Interesting comment. Accounting wise, I don’t see how you can track the difference if you don’t adjust the UCC.
Best to consult your own accountant.
Bridge Dale
Being in the market for buying a new house, you always seem to look for other options as well. I’m looking at the prospect of getting myself a condo. Whether I do or not remains to be seen, though.