By Lorne Shuman
The real estate buying process is complicated even for the experienced buyer. However, when, buying a new home or condominium from a builder, there are even more issues to consider aside from the purchase price, the reputation of the builder and what the finished product will look like when it is built. One such issue that puzzles many buyers and realtors is how the HST is applied to the purchase price.
First of all, it is well known that HST does not apply to resale properties. However, the story is entirely different with the purchase of a brand new property from a builder. Is HST included in the purchase price? Will the buyer receive an HST rebate? This article will examine the mechanics HST on the purchase of a new property.
Many buyers of a new property from a builder are confused by the HST rebate and mistakenly assume that they are entitled to a rebate of some kind from the builder. This is not true. When a buyer buys a new property from a builder, the purchase price includes the HST rebate assuming that the buyer or its immediate family member will occupy the property as its primary place of residence. In other words, if you buy a brand new condominium from a builder and you or your immediate family member occupy the property as your primary place of residence, then the builder will not charge you the HST rebate and you will not pay any additional HST on the purchase price. Accordingly, you do not receive a rebate because the rebate is already included in the purchase price. This type of rebate is called the New Housing Rebate.
If, however, you buy a brand new condominium from a builder as an investment and you or your immediate family member do not occupy the property as your primary place of residence, you do not qualify for the New Housing Rebate and the builder will charge you the HST rebate on the purchase price on the closing. The amount of this charge will vary, but it is typically approximately $24,000.00. Therefore, as a buyer in this case, you need to be prepared for this extra cost on closing. Despite having to pay this charge on closing, you may be able to recoup the HST rebate that you paid to the builder, by applying for what is called the HST New Residential Rental Property Rebate after closing. In order to do this, you will need to provide Canada Revenue Agency with a completed rebate application and, among other items, a copy of a one year lease or rental agreement of the property. As long as you submit this application within 2 years of the closing of the transaction, you should receive a refund of all or most of the HST rebate that you paid to the builder.
There are two other important matters to keep in mind. First, of all, the definition of immediate family member does not include all of your family members. Uncles, aunts, nieces and nephews are not considered immediate family members and will not qualify for the HST New Housing Rebate. Second, many buyers will ask how long one must occupy the property after closing in order to qualify for the HST New Housing Rebate. Unfortunately, there is no definitive answer to this question as Canada Revenue Agency looks at all of the factors, including what was the intent of the buyer when they purchased the property from the builder. If Canada Revenue Agency audits the transaction (I have had this happen to a number of clients) the onus will be on the buyer to prove their intent and to demonstrate that he or she actually moved into the property. Failing this, CRA can demand repayment of the rebate together with interest and penalties.
In situations where one individual has purchased 2 or 3 units in a condominium building, it is not feasible for a buyer to claim that he or she will occupy each unit. It is also worth noting that in order to avoid paying the HST rebate on closing, the builder will require that each buyer signs an affidavit, statutory declaration and indemnity proving that he or she qualifies for the HST New Housing Rebate, failing which the builder will charge the rebate on final closing. I have seen cases, where the buyer says that they are living in the property and the builder discovers that in fact the buyer is renting out the unit. In these cases, the builder will charge the buyer the HST rebate on closing. I always tell my clients that they must be truthful and that misleading the builder or Canada Revenue Agency is risky and will invite an audit, a demand for repayment along with penalties and interest.
Finally, it is also important to note that where an individual buys a brand new condominium or home from a builder and requires another individual to go on title in order to obtain the financing, Canada Revenue Agency may deny the HST New Housing Rebate and charge the buyer the rebate after closing even if one of the owners moves into the property. In some cases, the courts have ruled that the HST New Housing Rebate is denied because not all of the buyers who took title to the property intended to or actually moved into the property. This is particularly true where the individual being added to title is not an immediate family member.
Recently, builders are becoming increasingly suspicious of buyers who say that the are moving into the property. Accordingly, some builders are now requiring that all buyers who claim that they will occupy the property must prove that they are living in the property being purchased by providing identification such as a driver’s license, utility or other bills with their name and the address of the property on the identification. Without this, some builders will charge the HST New Housing Rebate even where the buyer is actually living in the property. My advice to clients now is that they should immediately change the address on their driver’s license or other documents to avoid having the builder charge them the HST rebate.
As one can see, buying from a builder is complicated and even more so with the HST rebate. Speaking with an experienced real estate lawyer at the outset is strongly recommended.
Article Courtesy of:
Isenberg & Shuman Professional Corporation
5075 Yonge Street, Suite 804
Toronto, ON M2N 6C6
Tel: 416-225-5136 x216