As buying pre-construction condos and houses becomes a norm, you might have thought – what’s the hook? One of them is HST payment. In Ontario, when you buy a resale property, you don’t pay HST but for pre-construction, since it is a brand new property, you are required to pay the taxes. We hope this blog helps you understand the minute details and make the right buying decision.
So, how much HST do I pay?
In Ontario, you pay a combination of HST – 8% is provincial tax and 5% is federal tax, bringing the total to 13%. Most builders include the HST in their selling price, but it is a little complex since the government is involved.
Builders often include both the HST and any applicable HST rebate in their initial pricing. So, if you’re looking at a new condo advertised for $500,000, this figure already covers the total cost, incorporating the HST and the rebate.
Hold on, there’s good news for you…
If you are the end user, meaning you will move into the unit at possession, the builder will offer you a reduced purchase price. You also are eligible for $24,000 in rebates when filing taxes through the New Housing Rebate. But only if you are the end user of this unit.
Let’s understand this with an example.
Let’s say you purchase a newly constructed condo in Ontario for $400,000. The HST in Ontario is 13%, making the HST on this purchase $52,000, bringing the total cost to $452,000. As a primary resident of the property, you will receive $24,000 in refunds. This means you can recover that portion of the HST paid, effectively reducing the total cost of your condo to $428,000 ($452,000 – $24,000).
However, there are some conditions:
- The unit must be occupied for a minimum of 12 months to receive this rebate.
- End user can be you, any member of your family, or relatives.
- Now, as the end user, if you sell the new construction property within 12 months of possession, you will still have to pay the HST.
- Lastly, if you have a co-signer on the purchase agreement who isn’t a family member or relative, you are no more eligible for the rebate.
HST Implications for Investors
Investors purchasing pre-construction properties to rent out aren’t eligible for the New Housing Rebate. Instead, they can apply for the New Residential Rental Property Rebate (NRRPR).
Federal Portion of the Rebate:
- Homes up to $350,000: You can recover 36% of the GST (5%), up to a maximum of $6,300.
- Homes between $350,000 and $450,000: The rebate gradually reduces.
- Homes over $450,000: You do not qualify for the federal portion of the rebate.
Provincial Portion of the Rebate (Ontario):
- You can recover 75% of the Ontario portion (8% HST), up to a maximum of $24,000.
- This provincial rebate applies regardless of the purchase price.
Combined Maximum Rebate:
If eligible for both federal and provincial rebates, you could recover up to $30,300 in total.
How do I qualify for a New Residential Rental Property Rebate?
To qualify for the HST rebate via the New Residential Rental Property Rebate (NRRPR), you’re required to rent the property for a minimum of 12 months after closing. The rebate amount is deposited in your account within 2-3 months. This rebate can only be applied within two years of closing, after which you are eligible for it.
Should you, the investor-owner, decide to sell the property within this 12-month timeframe, you forfeit eligibility for the HST rebate. If within that time frame you have been given a refund, you will have to refund the money to the government.
Documents that you need to submit to the CRA include:
- Agreement of Purchase and Sale
- Final Closing Statement of Adjustments
- Lease Agreement with the first tenant
- Land Transfer Tax Statements
- GST/HST New Residential Rental Property Rebate Application
GST/HST payment is different from land transfer tax and property tax. Neither the end user nor an investor receive rebate through any programs for both of them. However, as an investor you can add the other two taxes as business expenses and receive credit towards your business tax.
How to Apply for HST on your New Pre-Construction Property?
Step 1 – Gather Required Documents
You need your final Statement of Adjustments from your lawyer, a copy of your Agreement of Purchase and Sale, and the correct rebate application form. If you’re the unit’s buyer, you need to download Form GST190 from CRA’s website. If you’re an investor, you need to download Form GST524.
Step 2 – Submit Your Application
Use your CRA My Account or mail in your application by post. It takes 6 to 8 weeks for CRA to review your application, faster if is sent in online.
Frequently Asked Questions
How is HST calculated when assigning your unit?
If you assign your unit and make a profit, that amount is multiplied with 13% tax in Ontario. You are, of course, required to pay this amount to the builder. The assignor is generally responsible for collecting and remitting the HST on the assignment sale. If the assignor is a non-resident of Canada, the assignee may need to self-assess and remit the HST directly to the CRA.
Effective May 7, 2022, all assignment sales of newly constructed or substantially renovated residential properties are subject to HST, regardless of the assignor’s original intent.
Can I get an HST rebate if I sell my home within a year?
If you sell your pre-construction home within one year of taking possession, you may have to repay the GST/HST New Housing Rebate. The Canada Revenue Agency (CRA) considers the rebate valid only if you, or a close family member, used the home as a primary residence.
Selling within the first year suggests you bought the property for investment or flipping, which disqualifies you from the rebate. If the CRA audits your file and finds you ineligible, they can claw back the rebate plus interest or penalties.
Our team at That Pre-Construction Guy is happy to answer more questions about HST rebates for new construction homes. Get in touch with us today.