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TAX REBATE BLOG SERIES:GST/HST New Housing Rebate

PURCHASE FROM BUILDER

Written by Jessie Ma | July 2021


If you are purchasing a new constructed or substantially renovated home from a builder as a primary residence, you may be entitled to the GST/HST New Housing Rebate.

This program provides a rebate on a portion of both the Federal and Provincial part of the HST paid. In most cases, the builder assumes you will get this rebate and so the rebate is built into the purchase price and a rebate application is included as part of the closing documents to be prepared by the builder and your lawyer.

It is important for you to know if you qualify for the rebate because if you do not most builder agreements will require you to pay the amount of the “lost “rebate to the builder on closing in addition to the purchase price.


WHO IS ELIGIBLE FOR THE REBATE?


The GST/HST Rebate is available to you if you satisfy these conditions:

  1. you are purchasing a newly constructed home or substantially renovated home “new home” from builder (“home” would include a house, a condo, a duplex and a mobile or modular home;

  2. all of the owners of the house are individuals; and

  3. the purchased home will be your primary residence or the primary residence of a relation to you.

With regards to the third condition, there are three categories of individuals who purchase new homes:

  1. Purchase property as Primary Residence;

  2. Purchase property for Rental Purposes (becoming a Residential Landlord);

  3. Purchase property for Investment Purposes or as a Second Home (e.g. Cottages)


The following are examples of some of the factors CRA will consider to determine whether a house is your or your relation's primary place of residence for purposes of the new housing rebate:

  1. the length of time you inhabit the premises

  2. the designation of that address on personal and public records such as:

  • mailing address

  • income tax (for example, forms or returns)

  • voting

  • municipal or school taxes

  • telephone listing





HOW MUCH REBATE IS AVAILABLE TO YOU?




There are two components to the GST/HST New Housing Rebate:


1. Federal Component of the GST/HST New Housing Rebate

The first rebate is the existing federal New Housing Rebate.

The rebate is 36% of the GST payable (the GST payable on a new home is 5% of the Purchase Price).

The 36% rebate is applicable on the first $350,000 of the purchase price.

If the purchase price is between $350,000 and $450,000, the 36% rebate will decline proportionately according to a formula generated by the CRA. This rebate will decline until the purchase price reaches $450,000 in which case, the rebate is eliminated entirely.

Therefore, if the purchase price of your new home exceeds $450,000, you will not receive any rebate for the federal component of the New Housing Rebate. The full GST equivalent to 5% of the Purchase Price will be payable by you.

2. Provincial Component of the GST/HST New Housing Rebate

The second is the provincial HST New Housing rebate in Ontario.

The rebate is 75% of the HST payable (the HST payable on a new home is 8% of the Purchase Price) to a maximum of $24,000. This maximum kicks in once the value of the new home is more than $4000,000, but unlike the federal component of the New Housing Rebate, the provincial rebate will be still available to you even though the purchase price of your new home exceeds $400,000

Therefore, if the purchase price of your home is $500,000 or $750,000 the provincial component of the rebate available to you will both be $24,000 and you will not get a federal rebate.




Here are three examples illustrating the calculation of the GST/HST Rebate available to you:


1) If the purchase price of your new home is $300,000, the calculations would be:

  • Federal Portion:

i. 5% of Purchase Price = $15,000 (5% X $300,000)

ii. 36% of GST Payable = $5,400 (36% X 5% X $300,000)

iii. GST (Federal) Rebate = $5,400

  • Provincial Portion:

i. 8% of Purchase Price = $24,000 (8% X $300,000)

ii. 75% of GST Payable = $18,000 (75% X 8% X $300,000)

iii. HST (Provincial) Rebate = $18,000


Total Rebate Amount = $23,400



2) If the purchase price of your new home is $500,000,the rebate available to you would be:


  • Federal Portion:

i. No Rebate is available as the purchase price exceeds $450,000.

  • Provincial Portion:

i. Rebate is a flat rate of $24,000 as the purchase price exceeds $400,000.


Total Rebate Amount = $24,000




HOW DOES THE REBATE WORK?


The general practice of New Home Builders is to price new homes at a sale price that is inclusive of the GST/HST (the total purchase price).


The builder will then credit your GST/HST rebate against the total amount of the purchase price.


This means your total purchase price (inclusive of GST/HST) will be reduced by the amount of GST/HST Rebate that is available to you. Therefore, you do not have to apply directly to the CRA and wait to receive your rebate.


Before the New Home Builder credits you with your rebate amount, they will typically require you to submit the following documents on closing to satisfy them that you qualify for the GST/HST rebate:

  • Rebate Application to the Canadian Revenue Agency (CRA) for federal portion of rebate and to the Ontario Ministry of Revenue (OMR) for the provincial portion of the rebate

  • An assignment of each rebate to the builder

  • Document that confirms the new home will be the primary residence of the purchaser or a purchaser’s relation.

  • Document that indemnifies the vendor (builder) for the rebate amount if the CRA or OMR rejects the application.

If the purchaser does not qualify for the GST/HST rebate, then the stated sale price will be adjusted at closing by adding back the deducted rebate amounts. This will result in a higher price payable on closing.

After closing, the New Home Builder will remit the net HST and your submitted documents to the CRA.


Note: The amount of consideration appearing on the Transfer/Deed will be the net sale price before HST is included. This is because Land Transfer Tax payable is computed on the purchase price before HST.