Homebuyers thinking of purchasing a new or pre-construction condo are often confused about the HST rebate. Questions like, "Who pays HST on new homes?" are often top of mind. And for good reason. The HST rebate can mean upwards of a $30,000 difference to your bottom line.
To make things a little clearer, we've answered some common questions posed by new home buyers in Ontario.
Just a note, the answers are purely for informational purposes and are not a substitute for legal advice. Always consult with your lawyer regarding the ins-and-outs of the HST rebate.
Q.) Are only pre-construction condo buyers entitled to receive the HST rebate?
A.) Nope, pre-construction buyers aren't the only ones who can take advantage of the HST rebate.Here's a quick outline of the types of home buyers entitled to receive the rebate in Ontario:
- End-users or investors buying a pre-construction condo or house
- Those who've purchased a newly completed residence that has never previously been lived-in by another person
- Individuals who've built a new home themselves
- Homeowners who have drastically renovated their residence. Note: kitchen makeovers don't apply. HST rebates are only provided when head-to-toe renovations have taken place that have transformed at least 90 per cent of a home
Q.) Is the process of applying for the HST rebate the same whether you're an investor or end-user?
A.) Simply put - no. It's critical to understand there are two types of HST rebates.
One for buyers who will live in the new residence (known as the New Home Rebate). And another for investors who purchased a new home with the intention of leasing it off as an income property (called the New Residential Rental Property Rebate). Filing for the wrong program can mean losing out on the rebate.
It's important to note that while the two have their differences, both stipulate the HST rebate will be voided if the new home is sold in under the first 12 months after closing.
The New Home Rebate (NHR) is catered to end-users. Here are a few facts to take note of:
- You (or a direct relative) must reside in the new home as the principal resident for at least the first twelve months after closing. If you flip the new home before then, the HST rebate must be paid back in full
- Only after living in the new home for a year can you re-sell the unit on MLS® and keep the HST rebate in your pocket
- If you filed an NHR but end up leasing the residence at closing instead of moving in yourself, you could be on the hook to pay the rebate back. Buyers who wish to rent off the new condo or house must apply for the New Residential Rental Property Rebate
- The HST rebate still applies even if a direct blood relative lives in the new home. However, the Canadian Revenue Agency only counts parents, children, siblings, spouses or common-law partners as direct blood relatives. Uncles, aunts, and cousins do not apply
- All co-signers are required to live in the new home as a principal resident in order for the HST rebate to be viable. So if a distant family member or friend has helped on the financing end of the equation by joining in as a co-owner, you'll likely lose out on the HST rebate unless they're also occupying the unit
- In most cases, an NHR means you'll receive the tax rebate right at the time of purchase
The New Residential Rental Property Rebate (NRRPR) is made for investors. Here are a few facts to take note of:
- Both Canadian and foreign investors can receive the HST rebate under the NRRPR
- You must provide a one-year lease agreement to prove the new condo or house will be a rented to a tenant
- Only after renting the new home for 12 months can you re-sell the unit on MLS® while keeping the HST rebate
- Investors are required to pay the HST upfront and will be rebated around two months after submitting lease. That means, if you're an investor, you'll need more cash on hand at the time of purchase
Q.) Do pre-construction condo prices include the HST rebate?
A.) In the majority of cases, yes, the new condo price lists you're skimming likely already include the rebate.
It's key to note however, there are situations where a certain builder or residence will not factor the rebate in their prices. So always remember to read the fine print and consult with your realtor.
Q.) When do I no longer qualify for the HST rebate?
A.) There is a time limit when applying for the HST rebate on a new home. If you've failed to file for the rebate within two years from closing on the residence, you may no longer be eligible to receive the money back.
Q.) How is the HST rebate calculated?
A.) For homes priced under $350,000, you're entitled to a maximum HST rebate of $30,000. Between $350,000 and $450,000 a sliding scale applies, while properties with price tags that are above $450,000, $24,000 is the highest rebate amount permitted.
For detailed examples of how the HST is calculated click here or view the Canadian Revenue Agency's info sheet.
This blog post does not constitute as legal or tax advice and is for informational purposes only. Please consult with your lawyer when assessing your HST rebate.
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