, , , , , ,

Why I Learned from My Mistake (And Maybe You Should Too)

I made a mistake.

It’s sad but I made a mistake. 

It was the last week of November. In a week or so, our family would be going on vacation in the south.

Canadian winter is hard to predict.  Sometimes, you get snow in November and sometimes, you don’t.

I was scrambling to find someone to shovel the snow for us at one of our properties. We got one referral, but they don’t service our area.

I have this type A personality that I want everything done yesterday.

Of course, they’re not always the case and I beat myself up for that every day.

When I couldn’t find someone immediately, I went on my preferred website, Kijiji, and contacted everyone who offered snow removal service.   Every single one!

I was under a time crunch!  We were leaving in a few days.

It was a lot of work chasing snow removal companies.  And you really don’t know who you can trust.

In the past, I hired my nanny from Kijiji, I rented out multiple properties on Kijiji. I bought a few used toys from Kijiji, all good experience.

When someone came back to me, who also lived around the corner, with a reasonable price, I thought it was good enough. I didn’t think twice, signed the contract and sent him the email money transfer.

Phew, one item crossed off my to do list!

Man, I was wrong!

If you remember, it was a relatively calm November and December.  Snow didn’t come in until January.

At first, I got a call from my handyman who’s fixing the property claiming that the snow wasn’t shoveled. I contacted the snow removal guy immediately.  His wife responded and everything seemed to be doing good.

The second snow storm hit, again, nothing happened.  No one came through.  His wife was trying to explain to me that he was trying his best and has been out for 24 hours.  He should be getting to my house soon after.

Third snow storm, 4th snow storm, I had to call them every time, left a message and still no show.

We were forced to send another contractor in for the snow removal, dropped 6 bags of ice along the sidewalk and our handyman finished the snow removal for us. 

I’m super grateful for these contractors and handyman who had helped us out.

My biggest mistake here was that I didn’t check with Google God.  I entered this company’s business name and all these negative reviews came up.  The following screenshot was from Home Stars site.

Please do not make the same mistake as I did this past season.  Make sure you check the reference, check with Google before you commit to a snow removal contract.

Now, onto this week’s topic.

I’ve mentioned it many times that CRA is focusing a lot of their energy on the real estate sector.  You can find their data directly in this link and they do a great job updating it periodically.

If you see this chart from their site, you can see that they have already issued audit assessments for over $360 million on GST/HST New Housing and New Residential Rental Property Rebates.

That’s a lot of money!

The reason why they can be so efficient and effective in this area is that people just don’t know about the rules very well.

Every new home builder is required to charge HST.  No difference than me providing accounting services, realtor providing real estate agency service, buying clothes in the store.

But the government offers a rebate (which is only a portion of the HST charged, don’t get mistaken!) if you rent out the home to a long-term tenant OR if you move into the property yourself and occupy it as a primary residence.

If you live in the property, you can assign the rebate to the builder to claim it on behalf of you. 

Builders, typically, would post the net price, assuming that they will get the rebate, instead of the home owners themselves. 

But if you don’t live in the property, you’re planning to rent it out, you CANNOT assign the rebate to the builders.  You have to pay for the full HST upfront, which means your purchase price is higher at closing.

I know, it sucks but you can get the money back afterwards!

All you need to do rent your new investment property out, sign a one year lease, and apply for the rebate.

The turnaround time is typically 3 months (from the date you submit the application to the date you get the money back)!

If you do it right, you will avoid this taxpayer’s mistake.

In a recent court case, Zdzieblowska, D. v. the Queen (TCC), the taxpayer was not the first person who occupied the home, so she did not qualify to assign the rebate to the builder.

CRA went after her and asked for the rebate back.

She did pay for it and she was hoping to get the money back with the signed one year lease.

Unfortunately, she passed the deadline for application for the New residential rental rebate.

She appealed to the court and of course, a deadline is a deadline, nothing the court can do.

She lost her right to get her money back!

The judge, however, made an interesting comment. If the taxpayer objected to the CRA initial assessment disallowing the rebate and instead requested to offset the balance by the residential rental rebate, she probably would not need to lose the entire amount.

Lessons learned:

  1. Don’t cheat!  You don’t live there, don’t assign the rebate to the builder.  It is not a luck of draw if CRA audits you.  It is just a matter of time.
  2. Even if you make a mistake assigning the right to the builder, you can still correct the problem before CRA comes after you!
  3. If you want a 2 min video on whether you should cheat, here’s the Youtube link.

Until next time, happy Canadian Real Estate Investing.

Cherry Chan, CPA, CA

Your Real Estate Accountant

2 replies
  1. Mat
    Mat says:

    Hi Cherry, great post. I recently purchased a new build that will be used as a rental from day 1. The total cost in the Purchase Agreement includes GST (House price + GST). The following clause is listed in the Purchase agreement.

    “if applicable, the Purchaser irrevocably assigns the Goods and Services Tax New Housing Rebate (the “GST Rebate”) to the Builder and will execute an application for the GST Rebate in the prescribed form as required under the Excise Tax Act and deliver it to the Builder.”

    Do I need to do anything with respect to the rebate? Thank you

    Reply

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *