What does the HST Rebate mean for house or condo purchases from a builder, and why is the government asking for money back from investors?
Latest update Jan 30th 2017
The HST rebate was created shortly after the Canada Revenue Agency (The CRA) dropped the massive HST hammer on unsuspecting Ontarians (well done BC for resisting!)
The rebate exists to provide some relief to buyers (especially first time buyers). Very important to note that the HST rebate is a partial rebate and you aren’t entitles to a 100% rebate as a first time buyer. You do have to jump through some hoops though.
First let’s talk about the discounting element. There are two important factors; GST & Provincial Sales Tax. The GST credit has been around for a long time and hasn’t changed. You are credited 0-36% of the actual GST (5%) amount paid on a new purchase. Notice it says 0-36%? The main criteria to qualify for the rebate is that the new property to be purchased is to be used as your PRINCIPAL RESIDENCE.
You’re entitled to receive the full 36% rebate on the purchase up to $350,000 and that number is reduced until you get to $450,000 which becomes 0% on any amount above $450K.. The GST credit will start dwindling until it reaches 450,000, where it becomes 0.
The Provincial portion (8%) of the tax is a credit of 75% of the actual amount paid capped at 400,000. What this means is that if you buy a property over 400,000 you will still be eligible for 75% of the 8% provincial tax paid.
Let’s look at a couple of examples. Remember we’re talking about NEW houses and condos here, not the resale market.
HST does not apply to resale properties.
Purchase price of property 350,000 + HST ( GST 17,500 PST 28,000). In this case you’ll be rebated 36% of the GST = $6,300 + 75% of the PST = $21,000 for a total rebate of $27,300.
Keep in mind that this rebate is already built into any purchase price you see at a sales office. When you look at the sales sheet you’ll see a sale price of $368,200 (350K + HST – Rebates). The problems come when the proper documentation isn’t filled out and the CRA comes to collect the rebate years later!
Purchase price of property 450,000 + HST ( GST 22,500 PST 36,000) Guess what, no GST rebate for you here. Properties over $450,000 are not eligible for the 36% credit so you’re stuck with the $22,500 tax. But you are still eligible for the PST credit. The PST credit is capped at a value of $400,000. Even though 75% of $450K is $36K you are only rebated 75% of $400K = $24,000. When you see this place on the sales sheet you’ll see a sale price of $484,500 ($450K +HST – rebates).
This credit is available for both first time home buyers and those that are purchasing properties as an investment. The only difference is in the forms that have to be filled out for these credits. 99% of the time these rebates are built into the price you see and pay at the sales centre. Since the builder is already discounting this HST rebate on the purchase price of the condo or house, be aware that you are signing this credit over to the builder to get a discounted price on the purchase. Also understand that they can technically do this if your purchase is to be your principal residence. If not, you should be paying full value for the condo and getting the discount later or else you may face problems 2 years later if CRA audits you and notices that the wrong forms were sent in.
It’s very tempting to flip your property with a hot Toronto Market but should you? Investment property owners should be aware that in order for you to keep the HST rebate you must have rented out the property for at least a year. This does not mean from occupancy this means from closing. Recently the government has been asking many investors who purchased properties and flipped them upon closing to pay the HST rebate back, that is a substantial repayment of taxes, just imagine in example 1 above where the total tax rebate was 27,300 to have to pay this back isn’t as simple as cutting a cheque for your average Canadian. Make sure you’re informed about the rules before you make an decision.
Also if the property is your principal residence there is no specific timeline for you to sell and not pay back any of the taxes that were rebated to you but CRA looks at these cases on a case by case basis, if it doesn’t make sense to you it probably doesn’t make sense to them.
The advice is to talk to your accountant when you buy or sell your property, to understand the tax implications both from HST rebates and potential capital gains taxes when the property is sold. This post was inspired by the many clients that have been ill prepared, ill advised by their professional service providers. We trust Grant Matossian, CGA with all of our tax advice. Ask him a question and be prepared for the most detailed answer you’ve ever received. Check him out on Facebook and visit his amazing website. This is one CGA that understands the importance of his online presence.