Investment Properties and the HST

Investors who bought new homes or condos in the past few years have faced HST bills up to $30,000 mainly due to their ignorance. In a nutshell, in order to qualify for new home (or condo) HST rebate, the new home or condo has to be either your primary residence or you must prove that you have rented it out for at least a year.

Now let us go into further details…

HST or The Harmonized Sales Tax (HST) was introduced in Ontario on July 1, 2010, combining the federal Goods and Services Tax (GST) with provincial sales tax into a single tax. Buyers pay HST on new units but not on previously owned units.

Often buyers of residential investment properties are not clear on HST. Based on the questions that I often encounter from my clients, here’s a most simplified explanation. Although care is taken to present all the information as accurately and efficiently as possible, readers are strongly advised to seek tax advice from tax experts and lawyers before buying any type of property. Please note that no representation or warranty with respect to the accuracy or the completeness of the information is given.

O.K. Are you ready to compare different scenarios/situations now?

Situation 1: Your intention at the time of buying a new home or condominium is making it as your primary residence. Then you or your close relatives move into your home on closing. In that case, you can apply for the full rebate immediately and HST rebate may not be added to your sale price. The builder claims the HST rebate on your behalf and offers you a lower price excluding HST rebate.

This type of rebate is known as New Housing Rebate (“NHR”). The NHR can be assigned to a builder from home purchasers on the unit/home sale closing.

Here are some quotes from CRA website.

“If the buyer is an individual who will use the house as his or her primary place of residence and the purchase price is less than $450,000, the buyer may be entitled to the GST/HST new housing rebate.”

“For purposes of the GST/HST new housing rebate, a person who has more than one place of residence should consider some of the following factors as to whether the residence may qualify as the primary place of residence:

  • whether the individual considers the house as his or her main residence;
  • the length of time the premises are inhabited; and
  • the designation of that address on personal and public records.

This means that you cannot claim a GST/HST new housing rebate for an investment property or a recreational cottage that is not your primary place of residence.”

Situation 2: Your intention at the time of buying is to lease it to someone as a primary residence. In that case, you are also entitled for the same amount of HST rebate as in situation 1. But your procedure is different and you must have extra money for closing. Since the builder cannot claim the HST rebate on your behalf, you are required to come up with the extra cash on closing to reimburse the builder the HST rebate he would otherwise get. The extra money can be as much as $30,000 upon closing. To prove your intention, Canada Revenue Agency (CRA) requires a one year lease. When you have leased it for 1 year or more, fill out the application form with the required documents and claim your rebate from CRA. You have two years to file the rebate application. Once you file the application, you can expect to receive the refund in 2 or 3 months.

So HST rebate is available to the landlord of a new property (including a single home or residential condominium unit) if the first occupant of the property is a tenant. This rebate is referred to as the New Residential Rental Property Rebate (“NRRP Rebate”). NRRP Rebate cannot be obtained from the builder and such purchasers must apply for the NRRP rebate directly after closing.

Here are some quotes from CRA website.

“The GST/HST NRRP rebateapplies to eligible rental accommodation and to land leased for a residence. The rental accommodation or land must be intended for long-term use as a residence.”

“Generally, you may be eligible to claim the provincial NRRP rebate if you qualify for the federal NRRP rebate for a rental property located in Ontario and you paid the HST”

Situation 3: Your intention at the time of buying a new home is to re-sell. Then just pay the full HST amount when you buy the home from the builder, and don’t apply for any rebate.

Situation 4: Re-sale condo. Before putting an offer on a resale condo ensure that there is no HST. The federal portion of the HST will apply to your purchase if:

  • You are buying the unit from someone who acquired and used the unit primarily (more than 50 percent) for business purposes (unless this was to earn long-term rental income);
  • You are buying the unit from someone who has claimed input tax credits for improvements to the unit; or
  • The unit has been substantially renovated. To find out what qualifies as a substantial renovation.

For further information visit CRA website