Being required to pay a Harmonized Sales Tax (HST) when you purchase a newly built home can be so troublesome. Most homebuyers are usually confused about the HST rebate, asking questions like “How does it work?”, “Who can benefit from it?” and “Who pays for it on new housing?”
First, let’s start by defining what an HST is. A Harmonized Sales Tax is what you pay on top of your purchase price when buying a new house or condominium. The HST is a combination of the provincial portion and federal portion. It was implemented in 2010, and it increases the tax on new homes from 5% to 13%.
Recently, the federal government introduced the HST rebate to relieve homeowners of the increased cost of buying a new house. With an HST rebate, new-house buyers can take back some of the provincial and federal parts of the HST.
If you plan to buy a new residential home or condominium, understanding what a rebate is and how it works is crucial. This article will discuss everything you should know about the HST rebate and how it works on a new build.
What the New Housing HST Rebate is and How it Works
When you purchase a residential home or condominium from a builder, you may be entitled to the HST rebate. The program is officially called the Harmonized Sales (HS) Rebate, which contains two programs — the HST New Home Rebate and the HST New Residential Rental Property Rebate. The Canada Revenue Agency implemented the program to combine both the provincial (PST) and federal (GST) taxes. The HST amounts to 13% of the new property’s purchase price.
The way the HST is charged on a new property depends on whether you are buying the house for personal use or rental. Either way, the rebate is applicable in both cases.
Depending on your province and the property’s condition, you might be eligible for the federal rebate, the province rebate, or both. However, the actual costs the purchaser needs to pay when closing the property and the method for claiming the rebate can differ significantly.
The federal part of the HST rebate will let the homebuyer claim 36% of the GST if the home costs $350,000 or less. However, if the home costs between $350,000 and $450,000, the rebate will gradually reduce until it becomes 0% when the price reaches $450,000.
On the other hand, the provincial part of the HST rebate allows the homebuyer to claim up to 75% of the tax. The minimum provincial tax you can claim is $24,000. Unlike the federal portion that ends when the price is $450,000, you can still claim the provincial portion.
When a buyer purchases a new property, the HST rebate will be assigned to the builder upon closing. The builder then uses the rebate to reduce the purchase cost of the property. This portion of the HST is not added to the property’s purchase price, and the builder will apply for the HST rebate for the property.
One thing to note is that the buyer needs to have the intention of acquiring the property as a primary place of residence when the offer to purchase is signed by the builder. This means the buyer should not lead the builder into believing that they are an investor when they’re not.
In the case where the buyer is purchasing the property to be used as an investment property (or if the intent is to use the property for purposes other than a primary residence), the buyer will need to pay the total amount that includes the purchase price and the HST amount. For this reason, the buyer/investor will apply for the HST rebate.
Eligibility for the New Housing HST Rebate
You will be entitled to claim an HST new housing rebate in Ontario if you are an individual who:
- Acquires a newly constructed or substantially renovated house or condo for residential purposes (for you or your family) that stands on purchased land or will lease the land for at least 20 years
- Contracts someone to build a house or heavily renovate a house or condo
- Builds or substantially renovates your own home for you or a relative to live in
- Rebuilds a home that was destroyed by fire
- Bought shares in a newly built or substantially redecorated co-operative housing (co-op) project and intends to use it for residential purposes
- Added a significant addition to your home
- Converted a commercial property into a residential one
The property’s purchase price should be less than $450,000 for you to be eligible to claim the GST or the federal portion of the HST rebate. If the purchase price is more than $450,000, you will only be eligible to claim the provincial part of the Ontario new-build HST rebate.
The rebate is also available for individuals who acquire newly constructed or substantially redecorated mobile and floating homes as a primary place of residence. You could claim the HST new rebate only if the property were built by the owner or purchased from a builder.
HST New Housing Rebates You Can Claim
The HST new housing rebate allows an individual to take back some of the federal part of the HST paid for a newly constructed or substantially redecorated house or condo for residential use, either by the buyer or their relatives. You can also claim the provincial part of the HST, whether the GST or federal portion is available or not.
In addition to the HST new housing rebate, a transitional new housing rebate may be available (even if you did not purchase the property for residential purposes). In such cases, it’ll be better if you work with a competent rebate firm. The new HST housing rebate Ontario is not available for a partnership or corporation.
Houses Purchased from a Builder
The HST new housing rebate is a program introduced by the government of Ontario.
You need to meet specific requirements before you can be eligible to claim the Ontario HST new housing rebate. The most important thing to know is that you need to acquire the property from a home contractor for this rebate.
You will be eligible to recover part of the HST new house rebate for a property acquired from a home constructor for residential purposes (either for your personal or family use) only if you meet one of the following requirements:
- You must have acquired the newly constructed or substantially decorated property (land and building) from a home constructor. These can include a residential condominium unit, a duplex, a townhouse, and more.
- You must have acquired a newly constructed or substantially redecorated floating or mobile house from a constructor (including the vendor or the manufacturer).
- You must have acquired shares in a newly built or substantially redecorated co-operative housing (co-op) project for residential purposes.
- You acquired a newly constructed or substantially redecorated property from a home constructor where the land will be leased for at least 20 years or more under the initial arrangement to acquire the property.
You can only claim the federal part of the HST new housing if the purchase price of the property does not exceed $450,000. However, for houses in Ontario, you will be entitled to the Ontario new housing rebate even if the fair market value exceeds $450,000 as long as you meet the requirement for claiming the rebate.
There are a few additional things you need to note:
- If the sale and purchase agreement is given to you, you may find two builders — the initial builder (Builder A) and the first purchaser (Assignor). When this happens, you need to pay the new housing HST rebate to Builder A for acquiring the new home and the assignor for acquiring the interest on the new house.
- If two or more individuals purchase the property or share the capital stock of a cooperation project, each of the individuals must meet the requirement to claim the HST new housing rebate.
Aside from acquiring the property from a builder, you can also be eligible to build the home yourself.
If you build your own house for residential purposes, you can claim the HST rebate if you meet one of the following conditions:
- You construct or contract someone to build a home for you (on land you already possess or rent out).
- You renovate or hire someone to renovate your house. (Note that you need to replace a minimum of 90% of your home interior to be a significant renovation.)
- You include a significant addition to your house (such as another story to your existing bungalow).
- You convert a commercial property to become a residential house.
- You redecorate or hire someone (including the home vendor or manufacturer) to renovate a newly constructed floating or mobile home purchased from a builder.
You can only claim the federal part of the HST new housing if the purchase price of the property does not exceed $450,000. However, for houses in Ontario, you will be eligible to claim the Ontario new house rebate even if the fair market value exceeds $450,000 as long as you meet the requirement for claiming the rebate.
Key Facts to Remember: End-user Vs. Investor
The new buyer must reside in the new home as their primary residence for at least 12 months.
You must provide proof of rent for the first 12 months.
If you sell the property 12 months from closing, you will need to repay the total HST rebate value.
If you flip the new home within the first 12 months, you will repay the HST rebate.
Your direct family can reside in the house as their primary residence. Here, only parents, spouses, siblings, children are considered a direct relation.
Investors can apply for the rebate within a maximum of 2 years upon closing. After that, you won’t be eligible again.
All co-owners should live in the house as their primary residence for the HST rebate to hold.
For the new residential rental property rebate (NRRPR), the investor needs to pay the total HST upfront. You will receive the rebate within 2 to 3 months, so ensure you have a substantial amount on hand during purchase.
For more information on how the HST rebate works on a newly built house, talk to a real estate lawyer from Diamond & Diamond today.
“Always ask the CRA if you are eligible for rebates. This way, you get to save a lot more!”
“Always ask the CRA if you are eligible for rebates. This way, you get to save a lot more!”
Documents Needed for the HST New Housing Rebate Application
When applying for the HST new housing rebate application, you need to ensure that you meet all the requirements to start the application.
Documents you have to send
You are not required to submit any documents alongside your HST new housing rebate application, but you’ll need to submit invoices with your worksheet if the manufacturer did not replace the HST on the invoice. You can submit a copy of these invoices. The Canada Rebate Agency may also request you to submit proof of occupancy.
Documents you have to keep
You should keep a copy of your forms. You can also keep the originals of your invoices. You will be required to fill out the forms for six years because the CRA may request to see them.
The CRA will accept only the original copy of the invoices that carry the co-owner’s name or the claimant. Photocopies, Interac slips, account statements, or credit card receipts won’t be accepted without the original invoice. They also do not accept quotes or estimates as proof.
Need Help with Your Real Estate-Related Problems?
When you want to apply for the HST new housing rebate, it’s crucial that you consult a competent law firm that understands the whole rebate process from start to finish. If you need a good and competent law firm, the Diamond & Diamond firm is your best bet.
Diamond & Diamond offers assistance with all real estate matters. Contact us today for proper guidance.